Influence of Digital Finance on Household Leverage Ratio from the Perspective of Consumption Effect and Income Effect

Household leverage ratio is an important factor affecting family stability. Digital finance has changed the means of payment and consumption frequency, but the relationship between digital finance and household leverage ratio is still unclear. The existence of household debt is defined as the existence of leverage. The higher the household debt, the greater the household leverage. Based on the matching data of the China Household Finance Survey (CHFS) 2019 and the China Digital Inclusive Finance Index, this paper studies the impact of digital finance on household leverage ratio and explores its mechanism theoretically and empirically. This research finds that digital finance can significantly promote the household leverage ratio and this conclusion is still valid after instrumental variable method and robustness test. The mechanism analysis shows that digital finance can promote household over-consumption and further expand household leverage ratio. Digital finance can also reduce household leverage ratio by increasing household income. The heterogeneity analysis suggests that the role of digital finance in expanding leverage ratio is stronger for urban areas and households with low educational level. For households with higher assets, digital finance helps to reduce leverage ratio. Therefore, the government should guide residents to consume rationally and give full play to the entrepreneurship-facilitating and income-increasing effect of digital finance. Meanwhile, the residents themselves should speed up the cultivation of digital financial literacy, which is of vital significance for lowering household leverage ratio and systemic financial risks. China’s development level of digital finance ranks among the top in the world. Studying the role of digital finance in China is helpful to provide experience reference for countries around the world.