Original Research

SAGE Open
July-September 2024: 1–17
Ó The Author(s) 2024
Digital Financial Literacy and Rural DOI: 10.1177/21582440241275642
journals.sagepub.com/home/sgo
Income Inequality

Guangshun Xu1 , Lin Feng1, Wenzheng Wang1, and

Qiaohui Liang1

Abstract
Digital finance plays a crucial role in enhancing financial inclusion and decreasing income inequality within developing coun-
tries. Given the digital and financial attributes that characterize digital finance, digital financial literacy (DFL) is a critical factor
that influences the extent to which this function can be exploited. There is relatively little empirical evidence linking DFL to
rural income inequality. Based on the 2017 and 2019 China Household Finance Survey data and two-way fixed effect panel
model, this study focuses on rural China and examines the effect of DFL on income inequality. Meanwhile, this study also
explores the mechanism of this effect from the perspectives of financial asset allocation and entrepreneurship. The empirical
results show that (1) increasing DFL within rural households contributes to decreasing income inequality; (2) DFL can
decrease income inequality by enriching the variety of household financial assets and enlarging the proportion of risky finan-
cial assets in rural households; and (3) improving DFL can ameliorate rural income inequality by increasing the probability of
entrepreneurship. The study’s findings put forward fresh empirical evidence for understanding the relationship and mechan-
ism that exist between DFL and income inequality, and more significantly, provide new suggestions for designing and enhan-
cing financial policies that aim to decrease income inequality in developing countries.

Keywords
digital financial literacy, rural income inequality, financial asset allocation, entrepreneurial probability, rural China

Introduction alleviation of income inequality. Yue et al. (2022) posit

that the DF can increase the likelihood that low-income
The incomes of Chinese farmers have continued to rise households fall into debt traps. The study by Mohd
since the reform and opening-up policy was implemen- Daud et al. (2021) examines the relation between DF
ted. However, this income increase has been accompa- and income inequality in 54 countries from a nuanced
nied by substantial income gaps. The Gini coefficient of perspective, concluding that DF widens the income gap.
rural China is approximately 0.35 2019, approaching the Reflecting our belief that digital financial literacy
internationally recognized warning line of 0.4 (Huo & (DFL) should be taken into account when examining
Chen, 2021). The widening income gap in rural areas hin- effect of DF on income inequality, many previous studies
ders economic development, reduces welfare-generated
note that it is difficult for people who lack DFL to mas-
incomes, and even brings about social instability
ter it (Kass-Hanna et al., 2022). For example, Lo Prete
(Neaime & Gaysset, 2018).
(2022) finds that investment efficiency is low for people
Although many studies have confirmed that digital
who could enter financial markets with a lower level of
finance (DF) is conducive to improving financial inclu-
DFL. Setiawan et al. (2020) state that people are more
sion (Ahmad et al., 2020; Batista & Vicente, 2020; Ozili,
2018), there is no consensus on whether DF can narrow
the income gap. For example, Demir et al. (2020) suggest 1
Shandong University of Finance and Economics, Jinan, China
that DF is the most promising financial innovation for
alleviating income inequality. Similarly, N. Yu and Corresponding Author:
Guangshun Xu, School of Finance, Shandong University of Finance and
Wang (2021) show that DF is beneficial for reducing the Economics, Shungeng Road 40, Shizhong District, Jinan, Shandong 250014,
urban-rural income gap. By contrast, some scholars find China.
that the development of DF is not conducive to the Email: [email protected]

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2 SAGE Open

rational in their saving behavior if they have a higher rationally, with the goal of making effective decisions
DFL. Leong et al. (2017) posit that people who lack (Noctor & Stradling, 1992). Subsequent scholars have
DFL are not informed about the risks of DF. According expanded on the definition of financial literacy to include
to Gabor and Brooks (2017), financial literacy is key to knowledge, application, and awareness as well (Bayar
decreasing the risk of DF. et al., 2020; Hung et al., 2009; Huston, 2010; Lusardi &
Motivated by these studies, we analyze the role of Mitchell, 2008, 2011). At the same time, there has been a
DFL in alleviating income inequality and make three lot of literature analyzing the financial literacy of rural
main contributions. First, this study develops a system households. For example, Chang et al. (2022) measured
for evaluating rural households’ digital financial literacy the level of financial literacy among rural households in
and measures their DFL by employing the principal com- China’s relatively poor areas, using indicators such as
ponent factor analysis method (PCFA), which expands understanding of basic financial concepts, savings and
prior research. Existing research either measures the investment planning, financial risk identification, and
financial literacy or measures digital literacy of rural investment in financial education and training. Twumasi
households (Twumasi et al., 2022; L. Zhao et al., 2022), et al. (2022 measured the financial literacy of Ghanaian
but there are few studies that assess both financial and rural farmers across seven aspects including interest rate,
digital literacy together. The second contribution of this inflation, risk diversification, loan decisions, time value
study is that it explores the impact of DFL on rural of money, money illusion, and insurance. Unlike other
income inequality. The majority of previous research has scholars, Tan et al. (2022) assessed the financial literacy
focused on the impact of digital literacy (Ma et al., 2018; level of the farmers surveyed by utilizing a set of 13 qua-
Siaw et al., 2020) and financial literacy (Lusardi et al., litative questions instead of quantitative calculation
2017) on farmers’ income. This study combined these problems.
two aspects for analysis. Finally, this study presents a As digital financial products and services such as
detailed analysis of the mechanism through which DFL mobile payments, digital credit, and digital investment
affects rural income inequality. We clarify the impor- continue to rapidly develop, the conventional definitions
tance of financial asset allocation and household entre- and measurement indicators of financial literacy have
preneurial participation as channels of the influence of become insufficient in depicting the unique features of
DFL on income inequality. Although there has been con- digital finance. Consequently, a growing number of scho-
siderable research on the impact of DFL on financial lars posit that there is a need to conduct additional
asset allocation (van Rooij et al., 2011) and entrepreneur- research on financial literacy within the framework of
ship (Oggero et al., 2020), this study conducted on the financial digital transformation (Lyons & Kass-Hanna,
effect of these two channels on rural income inequality. 2021; Ravikumar et al., 2022; Stephen, 2022). Regarding
In the remainder of this article, we will follow the fol- the definition of digital financial literacy, the majority of
lowing structure. Section ‘‘Literature Review and scholars define it as the acquisition of knowledge, skills,
Research Hypothesis’’ provides a review of existing liter- attitudes, and behavioral habits that individuals require
ature on the research topic and presents a theoretical to effectively participate in financial transactions and uti-
analysis of the effects and mechanisms of DFL on lize digital financial services via digital devices (Azeez &
income inequality. Based on this analysis, research
Akhtar, 2021; Saini, 2019). Currently, a lot of scholars
hypotheses are proposed. A description of the data and
are really focused on figuring out how to measure digital
methodology is provided in Section ‘‘Data and
financial literacy, and most of them are working hard on
Variables.’’ Section ‘‘Econometric Model’’ presents the
developing new and better measurement indicators.
econometric models used in this study. A discussion of
Lyons and Kass-Hanna (2021) have proposed a concep-
the empirical results and the results of the mechanism
tual framework for digital financial literacy that includes
analysis is presented in Section ‘‘Empirical Analysis’’.
five key dimensions: basic financial and digital knowl-
Section ‘‘Conclusions and Policy Implications’’ concludes
edge, awareness of positive financial attitudes and beha-
and proposes policy implications.
viors, ability to make digital financial transactions,
ability to make appropriate financial decisions, and self-
Literature Review and Research Hypothesis protection. To define and measure these aspects, they
suggest using metrics such as compound interest calcula-
The Impact of Digital Financial Literacy on Rural
tion, inflation, and risk diversification, as well as the abil-
Income Inequality ity to handle digital payments and so on. Prasad et al.
Scholars have conducted extensive research into the (2018) have identified four dimensions of digital finance
meanings and implications of financial literacy. The orig- literacy, which are basic knowledge, practical experience,
inal definition of financial literacy was focused on an risk awareness, and financial skills. Si et al. (2022)
individual’s ability to allocate and manage their wealth attempted to measure digital financial literacy by adding
Xu et al. 3

content such as digital payments, digital wealth manage- Digital Financial Literacy, Financial Asset Allocation,
ment, and digital lending on the basis of compound and Rural Income Inequality
interest calculation, inflation, and risk diversification.
Fewer studies have examined the impact of digital finan-
While previous research has established a strong theoreti-
cial literacy on rural household financial behavior, but
cal foundation and empirical basis for this study, these
many studies have analyzed the role of financial literacy.
studies have not delved fully into the digital financial lit-
For example, Sayinzoga et al. (2015) found that the num-
eracy status of rural households. Given the ongoing
ber of savings and loans among Rwandan smallholder
spread of digital finance in rural regions, it’s worth high-
farmers increased significantly after they were trained in
lighting that digital financial literacy can have a major
financial literacy. Murendo and Mutsonziwa (2017) fur-
impact on the economic outcomes that digital finance
ther explored the impact of financial literacy on the sav-
can generate for the local economy.
ings structure of rural households and found that as the
Currently, scholars have mainly explored the impact
level of financial literacy increased, the share of formal
of financial literacy on farmers’ income, while research
savings (savings with formal financial institutions)
on the impact of digital financial literacy on farmers’
increased. On the other hand, Schoofs (2022) pointed out
income is not enough. Most scholars view financial lit-
that financial literacy did not have a significant impact
eracy as a human capital element and they argue that the
on farmers’ saving behavior, but only changed their bor-
improvement of digital financial literacy can improve the
rowing behavior, causing them to shift from informal to
accessibility of financial services to farmers and thus con-
formal borrowing. Raza et al. (2023) reached similar con-
tribute to their income levels (Lusardi & Mitchell, 2014;
clusions after studying the relationship between farmers’
Twumasi et al., 2022). It has been shown that lack of
financial literacy and credit availability in Pakistan. In
financial literacy leads to poor or incorrect investment
studying the impact of rural e-commerce development on
and borrowing decisions by rural households, which in
farmers’ digital financial market participation, L. L. Su
turn reduces the household’s ability to generate income
et al. (2021) found that farmers with higher financial lit-
(Berry et al., 2018). At the same time, a higher level of
eracy were more able to actively participate in the digital
financial literacy can help farmers reduce the financial
financial market (e.g., digital payments, digital wealth,
risks associated with investing or borrowing, and thus
etc.). Gaurav et al. (2011) empirically analyzes the impact
reduce the negative impact of financial risks on income
of financial literacy training on rainfall insurance adop-
(Banks et al., 2020; Lusardi & Mitchell, 2017). Some
tion by farmers in India. And the study revealed that
scholars have also empirically tested the poverty reduc- financial literacy training increases rainfall insurance
tion effect of financial literacy and found that it is more adoption from 8% to 16%.
conducive to improving rural low-income households, Unlike traditional financial service models, recent
thus proving the significant poverty reduction effect of financial digitization in emerging economies has led to
financial literacy (Tan et al., 2022; H. D. Xu et al., the rapid introduction of new financial products, which
2023).This study suggests that digital financial literacy is more evident in their rural areas. The lack of financial
can be defined as the understanding, analysis, manage- literacy may slow the adoption of these products. DFL is
ment, and communication of digital finance issues. helpful in lowering entry barriers and enabling low-
Reflecting our belief that the level of DFL in rural fami- income rural households to access more readily to diver-
lies is heterogeneous, Setiawan et al. (2020) note that sified financial markets. It is well known that DF has
DFL is affected by socio economic standing. Rural fami- lowered the entry threshold of the financial market, such
lies with higher educational attainment and higher finan- as the bank wealth management products, fund, and
cial asset holdings tend to have higher DFL. These stock markets (He & Li, 2020; Jia et al., 2021). However,
families usually have a high wealth (Lusardi & Mitchell, in the process of using DF, low-income rural households
2014; Prasad et al., 2018). As the DF grows, financial may be excluded from digital finance because they are
markets become increasingly accessible to rural house- presumed to have quite limited DFL compared to high-
holds. However, owing to the heterogeneity of DFL, the income households who have developed considerable
development of DF may mainly improve the income of financial literacy under the traditional finance model
families with high initial wealth. In this context, the (Guo et al., 2022). DFL is an important determinant of
improvement of DFL will mainly improve the efficiency a household’s capability to collect and process financial
of DF use in low-income families, and thus narrow the information and to make appropriate financial resource
income gap between them and high-income families. allocation decisions. Low-income rural households with
This leads to the following hypothesis: high DFL can skillfully use digital finance to diversify
their financial assets, which reduces risks and increases
Hypothesis 1. The improvement of digital financial lit- property returns (Chu et al., 2016). This is helpful in alle-
eracy narrows the rural income gap. viating the income inequality between them and high-
4 SAGE Open

income households. Given these assumptions, we pro- financial literacy on self-employment entrepreneurship
pose the following second hypothesis: among poor rural households. Luo et al. (2021) show
that the improvement of DFL can particularly benefit
Hypothesis 2. DFL can alleviate rural income inequal- vulnerable populations, particularly those living in rural
ity by optimizing the financial asset allocation of rural or less-developed areas.
households. While few studies explore how DFL impacts rural
income inequality through entrepreneurship, we suppose
there might be a mediating effect of entrepreneurship.
Digital Financial Literacy, Entrepreneurial Probability, DFL can help low-income farmers start businesses in two
and Rural Income Inequality ways to narrow the income gap with high-income fami-
lies. As DFL improves, rural low-income households are
With respect to the relationship between financial lit-
likely to acquire a better understanding of digital finance
eracy and entrepreneurship, many scholars have con-
and, thus, have better access to finance services to sup-
ducted extensive and in-depth investigations. Some
port their entrepreneurial activities. On the other hand,
scholars found that digital financial literacy has signifi-
DFL can reduce the risk aversion of low-income farmers
cant and positive influence on entrepreneurial perfor-
and equip them with better risk-management skills, mak-
mance. Some scholars assert that financial literacy has
ing them willing to accept new things to improve the pos-
significant and positive impact on households’ entrepre-
sibility of entrepreneurship. In this way, we suggest a
neurial probability (R. Li & Qian, 2019; Luo et al., 2021;
third hypothesis.
Sayinzoga et al., 2015). The explanation they give is that
with increased financial literacy, households would have
Hypothesis 3. DFL can alleviate rural income inequal-
easier access to and efficient use of credit, their risk toler-
ity by improving rural households’ entrepreneurial
ance would increase, which in turn would increase the
probability.
likelihood of starting a business (S. Liu et al., 2023;
Oggero et al., 2020; Riepe et al., 2022). In addition, some
scholars have researched the impact of financial literacy Data and Variables
on household entrepreneurial performance. Luo et al.
(2021) found that there was a positive effect of financial Data
literacy on business ownership and business innovation We derived our data from the 2017 and 2019 China
after analyzing data from 38,556 households in China. Household Finance Survey (CHFS) conducted by the
After analyzing the impact of financial literacy training Southwestern University of Finance and Economics
on entrepreneurial performance of African entrepre- (SWUFE). This survey gathered detailed information at
neurs, Brixiova et al. (2020) concluded that the training the micro level about various aspects of household
is more conducive to improved entrepreneurial perfor- finances and economic activity (Gan et al., 2016). This
mance of male entrepreneurs. Tian et al. (2020) explored survey provides a wealth of information that fits well
the impact of executive financial literacy on innovation with the topic of our research. This database has been
in small and medium-sized enterprises in China and proven by much of the literature to be highly authorita-
found that the executive financial literacy can signifi- tive in the study of income inequality (R. Li et al., 2023;
cantly improve firm innovation. Wan et al., 2021; C. Zhang et al., 2014). According to
It is generally acknowledged that the ability to obtain the needs of this study, data from rural sample house-
financing is an important part of entrepreneurial capabil- holds who received the questionnaire in both 2017 and
ity (Chang et al., 2022). Compared to high-income fami- 2019 were extracted from this paper. To avoid errors due
lies, low-income rural families need more support from to outliers and missing values, we removed households
external funds when starting ventures (Burgess & Pande, with missing values and applied a 1% tailing process to
2005). However, many low-income rural households with the outliers. After the processing, we finally obtained the
entrepreneurial abilities may not have the enough digital sample data of 7,946 rural respondent households. These
financial literacy to acquire funding to start a venture households are distributed across 29 provinces and 365
(C.-W. Liu, 2020; Muhammad et al., 2017). Meanwhile, counties. In addition, the provincial control variable
owing to low initial wealth and lack of risk management data were obtained from the China Socio-Economic
skills, rural households with low incomes are more averse Development Statistical Database.
to the risk of entrepreneurial failure than high-income
households. Meanwhile, there is already evidence to sug-
gest that improving financial literacy can have a greater Dependent Variable
impact on the entrepreneurship of lower-income popula- We refer to the existing literature examining household
tions. Chang et al. (2022) confirm the positive impact of inequality (Carpantier et al., 2018; Firpo et al., 2009;
Xu et al. 5

Table 1. The Evaluation Index System of DFL.

Primary index Secondary index Tertiary index

Financial knowledge Interest rate t Whether the question is answered correctly. If yes, the value is 1; otherwise, the value is 0.
Interest rate d Whether the question is answered directly. If yes, the value is 1; otherwise, the value is 0.
Inflation t Whether the question is answered correctly. If yes, the value is 1; otherwise, the value is 0.
Inflation d Whether the question is answered directly. If yes, the value is 1; otherwise, the value is 0.
Risk t Whether the question is answered correctly. If yes, the value is 1; otherwise, the value is 0.
Risk d Whether the question is answered directly. If yes, the value is 1; otherwise, the value is 0.
Financial skills Stock Whether rural households have stock accounts. If yes, the value is 1; otherwise, the value is 0.
Funds Whether rural households hold funds. If yes, the value is 1; otherwise, the value is 0.
Credit card Whether rural households hold credit cards. If yes, the value is 1; otherwise, the value is 0.
Digital financial skills Digital investment Whether rural households hold internet wealth management products. If yes, the value
is 1; otherwise, the value is 0.
Digital payment Whether they choose computers or mobile terminals such as cell phones to make
payments. If yes, the value is 1; otherwise, the value is 0.
Digital loan Whether rural households conduct internet borrowing for daily life activities such as
production and business and purchasing a house or car. If yes, the value is 1; otherwise,
the value is 0.

Schneck, 2020) and use the value of the Gini recentered financial literacy among rural households. We believe
influence function (Gini-RIF) for each rural household that digital financial literacy covers not only financial
as the dependent variable. The calculation process for knowledge and financial skills, but also emphasizes the
this value consists of two steps. First, we calculate the digital skills of residents in using financial products.
influence of each rural household on the income Gini First, referring to Prasad et al. (2018) and Lyons and
coefficient based on their total household income per Kass-Hanna (2021), three major questions were selected
capita and income distribution, which is the influence to measure the respondents’ financial literacy in terms of
function calculation. Gini coefficient influence function interest rate calculation, inflation calculation and risk.
is defined as a function of income y and the income dis- Following Lusardi and Mitchell (2011), due to our belief
tribution function Fy and is defined as that incorrect answers represent a different level of finan-
cial knowledge than those who cannot calculate or do
G((1  e) Fy + e Hyi )  G( Fy ) not do any calculations, two dummy variables were cre-
IF(yi , G(F y )) = lim ð1Þ
e!0 e ated for each question. It indicates whether the question
is answered correctly in the first dummy variable, and
where G(Fy) is the Gini coefficient for the income distri- whether it is answered directly in the second dummy
bution function Fy. Hyi is a distribution that takes a value variable. Second, three indicators are selected to measure
only at yi. the financial skills: whether rural households have stock
Second, we calculate the value of the recentered influ- accounts, whether they hold funds, and whether they
ence function (RIF) for each rural family, Gini-RIF, hold credit cards. Third, three indicators are selected to
which is a function of one family income yi and the given measure rural households’ digital skills in using financial
distributional statistic G(Fy) in equation (1). The Gini- products: whether they hold internet wealth management
RIF can be defined as follows: products, whether they choose computers or mobile
terminals such as cell phones to make payments, and
RIF( yi , G( Fy )) = IF( yi , G( Fy ))  G( Fy ) ð2Þ whether they conduct internet borrowing for daily life
activities such as production and business and purchas-
where RIF(yi,G(Fy)) is the Gini-RIF. Obviously, the RIF ing a house or car. Thereby, the DFL was divided into
for the Gini coefficient is the Gini coefficient, G(Fy), and 12 indices. Detailed evaluation indexes for DFL are
the influence function for this statistic is IF(yi,G(Fy)). shown in Table 1.
Following N. Xu et al. (2020), the above 12 variables
were subjected to principal component factor analysis
Core Independent Variable (PCFA) to calculate the composite score, which was used
We take the level of digital financial literacy among rural to measure the level of digital financial literacy of rural
households as the core independent variable. As men- households. Validity and reliability tests show that KMO
tioned in the previous literature review, there is no con- value is 0.6319 and Bartlett’s test is significant. These
sensus on the indicators for measuring the level of digital tests imply that the 12 indices are suitable for
6 SAGE Open

Table 2. Total Variance Explained.

Initial eigenvalues Rotation sums of squared loadings

Factor Total % of Variance Cumulative Total % of Variance Cumulative

Factor 1 2.5307 0.2109 0.2109 2.3278 0.1940 0.1940

Factor 2 1.5481 0.1290 0.3399 1.5965 0.1330 0.3270
Factor 3 1.2973 0.1081 0.4480 1.4158 0.1180 0.4450
Factor 4 1.1095 0.0925 0.5405 1.1455 0.0955 0.5405
Factor 5 0.9904 0.0825 0.6230
Factor 6 0.9218 0.0768 0.6998
Factor 7 0.8794 0.0733 0.7731
Factor 8 0.8546 0.0712 0.8443
Factor 9 0.6866 0.0572 0.9015
Factor 10 0.4657 0.0388 0.9403
Factor 11 0.4178 0.0348 0.9751
Factor 12 0.2982 0.0249 1.0000

Note. Extraction method is principal component analysis. Rotation method is Varimax with Kaiser normalization.

Table 3. Rotated Factor Loading Matrix.

Factor loadings
Variable Factor 1 Factor 2 Factor 3 Factor 4

Interest rate t 0.7082 0.0394 0.0038 0.0718

Interest rate d 0.8324 0.0659 0.0590 0.0381
Inflation t 0.6707 0.0284 0.0745 20.0270
Inflation d 0.8079 0.0495 0.0642 20.0109
Risk t 0.0407 0.8859 0.0478 0.0146
Risk d 0.0618 0.8857 0.0293 0.0001
Stock 0.0325 0.0154 0.0689 0.7374
Funds 0.0222 0.0061 20.0038 0.7568
Credit card 0.0713 0.0363 0.5312 0.0898
Digital investment 0.0249 20.0035 0.7414 0.0349
Digital payment 0.1312 0.1284 0.7209 0.0039
Digital loan 20.0280 0.0020 0.2076 20.1100
KMO test 0.6319
Bartlett test 14,848.309***

Note. Extraction method is principal component analysis. ***indicates significance at the 1% level.

constructing a composite indicator using factor analysis. and increasing the probability of entrepreneurship.
After factor rotation, the result of the PCFA is reported According to earlier studies (Schoofs, 2022; Setiawan
in Table 2. Based on the rule that the eigenvalue is et al., 2020), digital finance can change the financial
greater than one, we selected the principal component. behavior of rural households and enrich the variety of
As presented in Table 2, the 11 tertiary indices (see Table their financial assets. Meanwhile, an increase in digital
1) were regrouped into four principal components financial literacy levels may improve rural household
explaining 54.05% of the total variance. Meanwhile, we investment strategies by enhancing their allocation of
present the PCFA components loadings in Table 3. high-risk financial assets. Accordingly, we use two indi-
cators to reflect the allocation of financial assets of rural
households: the variety of financial assets and the ratio
Mechanism Variable of risky financial assets. Among them, the variety of
The previous theoretical analysis suggests that digital financial assets of rural households includes term depos-
financial literacy can reduce the income gap among its, wealth management products, funds, stocks, bonds
farmers by optimizing the allocation of financial assets and so on. The ratio of risky financial assets is reflected
Xu et al. 7

by the proportion of risky financial assets such as wealth the three questions about financial knowledge correctly.
management, stocks, funds, and financial derivatives Regarding to financial skills, only 7% of households
owned by households to financial assets. have used credit cards. As for digital financial skills,
As for the variable reflecting the probability of entre- among the sample households, while the percentage of
preneurship, referring to existing studies (R. Li & Qian, households using digital payments is high (19.2%), the
2019; Muhammad et al., 2017; J. Zhao & Li, 2021), we percentage of households holding digital investment
measured it by the respondent’s answer to the question, products and using digital credit is low (about 3%). The
‘‘Is your household currently engaged in commercial and above data indicate that the level of DFL in rural fami-
industrial production projects, including self-employ- lies is low. Furthermore, from the descriptive statistics of
ment, renting, transportation, online stores, and running the channel variables, each rural household owns 1 to 2
a business?’’ If the head of the household answers ‘‘yes,’’ financial assets on average, the average ratio of risky
the household is considered to have started a business financial assets held by rural households is 0.6%, and
and the variable is assigned the value of 1, otherwise it is 9% of the sample households have started a business.
assigned a value of 0. With regards to control variables, the average age of
householder is 58.648 years, 88.4% are male, 90.3% have
Control Variable a spouse, while the average education level among them
is only between primary and secondary school, indicat-
Additionally, we take measures to minimize the potential ing that most householders have low education level. In
impact of omitted observable factors on our estimation addition, 10.5% of household heads are CPC members,
results by carefully controlling as many relevant variables and the proportion of urban Hukou is only 5.6%. There
as possible. We select them by drawing upon the existing are 3 to 4 people in each rural family. The mean depen-
literature on rural income (Altunbasx & Thornton, 2020; dency ratio is 35.4%, which is generally consistent with
Ding et al., 2023; Khan et al., 2021; M. Li & Xiong, the data in other studies (Ma et al., 2022). A total of
2018; Mitra et al., 2020; Morduch & Sicular, 2000; G. 3.9% of surveyed rural households has experienced
Yu & Lu, 2021). Specifically, individual characteristics of
demolition. Averagely, each rural household owns 1 to 2
the head of rural household mainly include the age and
houses. On average, the value of the logarithm of the
its squared term, gender, marital status, education, party,
GDP per capita of the province where the sample house-
and Hukou. Household characteristics mainly include
holds are located is 10.946, and the ratio of total govern-
family population size, dependency ratio, housing demo-
ment fiscal expenditure to GDP is 24.9%.
lition, and the number of houses owned. To account for
province-level heterogeneity, we control for the province
characteristics, including the logarithm of the GDP per Econometric Model
capita in the province where the rural household is
located, and government intervention that is reflected by A major challenge in estimating the effects of DFL on
the ratio of total government fiscal expenditure to GDP. rural income inequality is the omission of potential con-
founding factors that affect both. To mitigate the adverse
effects of confounding factors on the regression results,
Variables Descriptive Statistics this study attempts to adopt a two-dimensional fixed-
Table 4 provides an overview of the selected variables effects model. The baseline regression equation can be
through their descriptive statistics. It can be observed provided as follows.
that the mean value of the logarithm of Gini-RIF is
20.803, the minimum value is 21.849, and the maxi- lnrifginiit = a0 + a1 dflit + b Controlit + gi + dt + eit
mum is 4.509. To further illustrate the income disparity ð3Þ
situation of rural households, we calculated the Gini
coefficient of total per capita household income based Where the subscripts of i and t denote the rural house-
on the sample data. The results show that the Gini coef- hold and the survey time, respectively. As mentioned ear-
ficients for 2017 and 2019 are 0.583 and 0.551, respec- lier, the dependent variable lnrifgini is logarithm of the
tively. Although the Gini coefficient decreased by 0.032, value of the Gini recentered influence function (Gini-
it is still higher than the international Gini coefficient RIF) for each rural household, and the core independent
warning line (0.4), which indicates a large income gap in variable dfl is the level of digital financial literacy of rural
rural areas. households calculated based on principal component fac-
In terms of DFL, the average value of DFL index was tor analysis. Control refers to a set of control variables
0.010. Its minimum and maximum values are 22.350 including the household and province characteristics.
and 2.581, respectively. Further analysis showed that on Moreover, a0 represents the intercept term in the equa-
average, each rural household could answer only one of tion. The parameters that need to be estimated are a1
8 SAGE Open

Table 4. Variable Definitions and Descriptive Statistics (N = 7,946).

Variable types Variables Definition and assignment Mean SD Min Max

Dependent variable lnrifgini Logarithm of the value of the Gini 20.803 0.589 21.849 4.509
recentered influence function (Gini-RIF)
Core independent variable dfl Calculated by principal component factor 0.010 1.006 22.350 2.581
analysis based on 12 indices
Mechanism variable Variety of The types of financial assets of rural 1.173 0.424 0.000 5.000
financial assets households
Ratio of risky The proportion of risky financial assets 0.006 0.054 0.000 1.000
financial assets such as wealth management, stocks,
funds, and financial derivatives owned
by households to financial assets
Entrepreneurship
Whether household 0.090 0.286 0.000 1.000
currently engaged in
commercial and
industrial production
projects, including self-
employment, renting,
transportation, online
stores, and running a
business (0 = no;
1 = yes)
Individual characteristics Age Age of the householder 58.648 10.929 22.000 93.000
Age2 Age square of the householder/100 35.591 12.905 4.840 86.490
Gender Gender of the householder (0 = female; 0.884 0.320 0.000 1.000
1 = male)
Marital status Whether the head of the household has a 0.903 0.296 0.000 1.000
spouse (0 = no; 1 = yes)
Education Education level of the householder 2.571 0.985 1.000 8.000
(1 = illiterate; 2 = primary school;
3 = middle school; 4 = high school;
5 = vocational high school; 6 = junior
college; 7 = bachelor; 8 = postgraduate)
Party Household head being CPC member 0.105 0.307 0.000 1.000
(1 = Yes, 0 = No)
Hukou Whether the householder has urban 0.056 0.230 0.000 1.000
Hukou (0 = no; 1 = yes)
Household characteristics Family size Total number of rural family members 3.425 1.672 1.000 15.000
Dependency Ratio of the number of people aged 0– 0.354 0.354 0.000 1.000
ratio 14 years and those aged 65 years and
over to the total number of family
members
Demolition Whether the family has experienced 0.039 0.193 0.000 1.000
demolition (0 = no; 1 = yes)
House The total number of houses owned 1.178 0.452 0.000 7.000
ownership
Province characteristics Lnpergdp Logarithm of the GDP per capita in the 10.946 0.357 10.241 12.011
province
Government The ratio of total government fiscal 0.249 0.098 0.120 0.634
intervention expenditure to GDP

and b. If the coefficient of a1 is significantly negative, it affect a household’s value of the Gini recentered influ-
means that the increase in digital financial literacy helps ence function.
to reduce the Gini coefficient and achieve a reduction in However, DFL may be endogenous. It is possible that
the income gap. gi represents the household-fixed effect. DFL is improved by narrowing the income gap. For
dt represents the time-fixed effect. Additionally, there is example, low–income households actively improved their
an independent and identically distributed random error DFL to reduce income disparities with high–income
term, e, which captures any other factors that could households. In addition, DFL and income inequality
Xu et al. 9

Table 5. DFL and Rural Income Inequality: Benchmark Regression.

Variable (1) (2) (3) (4)

dfl 20.024*** 20.024*** 20.023*** 20.021***

(0.009) (0.007) (0.009) (0.008)
age 20.025* 20.014* 20.015*
(0.013) (0.008) (0.008)
age2 0.026** 0.012* 0.016*
(0.011) (0.007) (0.009)
gender 20.055 20.038 20.038
(0.036) (0.035) (0.035)
marital 20.066 20.031 20.031
(0.057) (0.056) (0.056)
education 20.009** 20.019* 20.021*
(0.004) (0.011) (0.012)
party 20.043 20.045 20.047
(0.034) (0.034) (0.034)
hukou 0.092** 0.098** 0.100**
(0.043) (0.046) (0.051)
famsize 20.055*** 20.055***
(0.011) (0.011)
dependency_ratio 0.248*** 0.247***
(0.054) (0.054)
demolition 20.106** 20.106**
(0.052) (0.052)
house 0.020 0.019
(0.024) (0.024)
lnpergdp 20.174**
(0.081)
gov_interv 1.025
(0.928)
constant 20.803*** 20.187 20.300 1.341
(0.000) (0.367) (0.386) (3.919)
Household fixed effect Yes Yes Yes Yes
Time fixed effect Yes Yes Yes Yes
N 7,946 7,946 7,946 7,946

Note. The robust standard errors are shown in parentheses. To provide more accurate estimates, we present robust standard errors for each household
level, which are shown in parentheses.
***, **, and * indicates significance at the 1%, 5%, and 10% levels, respectively.

may be correlated with some unobservable factors. To of entrepreneurship. To verify the above conjecture, we
address the endogenous issues mentioned above, we used constructed the following two models:
the instrumental variable method and estimated the coef-
ficients using a two-stage least squares method. The typefinit = a0 0 + a0 1 dflit + b0 Controlit + gi + dt + e0 it
equations are as follows. ð6Þ

dflit = h0 + h1 Zit + x Controlit + gi + dt + mit ð4Þ entreit = a00 0 + a00 1 dflit + b00 Controlit + gi + dt + e00 it
ð7Þ
lnrifginiit = a0 0 + a0 1 d ^f lit + b0 Controlit + gi + dt + nit
ð5Þ Where typefin represents the types of financial assets,
and entre represents the entrepreneurship.
Where Z is instrument variable, and d ^f l is the fitted
value of the regression of equation (4). Other variables Empirical Analysis
have the same meaning as in equation (3).
As analyzed in the previous theory, DFL may reduce Effect of DFL on Rural Income Inequality
the rural income gap through two channels: optimizing Table 5 presents the benchmark results of DFL on rural
financial asset allocation and increasing the probability income inequality based on equation (3). To investigate
10 SAGE Open

the effects of DFL, we perform the entire estimation pro- family dependency ratios are not conducive to closing
cess in a stepwise regression approach. Out of these the income gap due to the increase in family burden. The
results, the first column displays an estimate result that estimated parameter of demolition is negative and statis-
does not consider any control variables. Columns (2) to tically significant, suggesting that demolition in rural
(4) build upon the column (1) by sequentially incorporat- areas has alleviated income inequality. The Chinese gov-
ing householder, household, and province characteristics ernment has adopted a policy of relocation to rural areas
in the presentation of the results. According to the esti- in poor regions (M. Li & Xiong, 2018; L. Zhang et al.,
mates obtained from columns (1) to (4), the DFL vari- 2023). These low-income rural families often receive
able is consistently found to hold negative significance some compensation after experiencing demolition and
with 1% confidence levels. Furthermore, regardless of relocation, which helps to narrow the income gap
whether additional observable factors are considered or between them and wealthy families. The per capita GDP
not, its estimated coefficients remain stable at approxi- of the province where the rural household is located
mately 20.02. This implies that a one-standard-deviation appears to have a significantly negative impact on Gini-
improvement in DFL is associated with a decrease of RIF. This may be explained by the trickle-down effect of
2.012% (20.02 3 1.006) in rural Gini coefficient. The economic growth, which holds that the first rich group
above evidence confirms that an improvement in DFL is will lead the low-income group to become rich along
conducive to alleviating rural income inequality and with the economic growth, and then achieve common
strongly reveals the important role of digital financial lit- prosperity (Chroufa & Chtourou, 2022; Shin, 2012).
eracy in alleviating rural income disparities.
With respect to the control variables, the estimation Robustness Checks
results are shown as an example in column (4) of Table To ensure the robustness of our estimates, we conducted
5. The estimated coefficient of the age of the household a set of robustness checks that include the replacement
head is significantly negative while the estimated coeffi- of dependent and key independent variables, as well as
cient of the age squared term is significantly positive, alternative estimation methods. The pertinent empirical
indicating a u-shaped relationship between age and results can be found in Table 6.
income disparity. With the increase in age, farmers First, we estimate the degree of income inequality by
accrue experience in their work, leading to a reduction in replacing the Gini coefficient with the Atkinson and
the income gap caused by initial differences in ability. Theil index, and recalculate the recentered influence
However, as they reach elderly age, several studies show function values based on the Atkinson and Theil index,
that differences in pensions will cause an increase in their respectively. The Atkinson Index is more sensitive to
income gap (Hanewald et al., 2021; Zhan et al., 2021). inequality at the bottom of the income distribution, while
The education level of the householder appears to have a the Theil index is more sensitive to the top of the income
negative and statistically significant impact on Gini-RIF, distribution (De la Vega & Volij, 2013; De Maio, 2007).
suggesting that the improvement of educational levels As shown in column (1), we redefine the dependent vari-
benefits the narrowing of income disparities in rural able as the logarithm of the value of the Atkinson recen-
areas. The possible reason for this may be that farmers tered influence function (Atkin-RIF). Meanwhile, we use
with longer years of education have greater knowledge the logarithm of the value of the Theil recentered influ-
to prosper and more proficiency in financial skills, and ence function (Theil-RIF) as another dependent variable
thus lead to more pronounced ‘‘spillover effects’’ of in column (2) of Table 6. The results presented in column
DFL. This finding is highly aligned with C. L. Chen (1) and (2) of Table 6 indicate that DFL still significantly
(2016) and Campos et al. (2016). The hukou variable is reduces the income inequality, suggesting that both mea-
positively and significantly correlated with the Gini-RIF. sures support the previous conclusions.
Rural families with urban hukou enjoy more benefits, Second, to provide a more comprehensive assessment
such as state subsidies and better education for their chil- of the levels of digital financial literacy within rural
dren (Wang & Schwartz, 2018). This allows them to households, we recalculate DFL using iterative principal
accumulate wealth faster than households with rural factor analysis (IPFA) based on the 12 indicators in
hukou only. This can further widen the rural income Table 1 to obtain the variable dfl_ipf. Then we use it as
gap. The estimated coefficient of family size is 20.055 the core independent variable in column (3) of Table 6.
and statistically significant at the 1% level. Greater As shown in column (3), the dfl_ipf variable is negative
household membership is associated with higher levels of significant at the 5% level and the coefficient of it is
labor income, which facilitates a narrowing of income 20.017, which again supports the conclusion that DFL
disparities between these households and those of greater mitigates rural income inequality.
affluence. In contrast, the estimated coefficient of depen- Third, to further lower reverse causality errors, this
dency ratio is significantly positive, implying that higher article estimates causal relationships between DFL and
Xu et al. 11

Table 6. DFL and Rural Income Inequality: Robustness Checks.

Replacing Y Replacing X Endogeneity

Variable (1) (2) (3) (4)

dfl 20.011* 20.041*** 20.105***

(0.006) (0.015) (0.039)
dfl_ipf 20.017**
(0.007)
age 20.008 20.015 0.001 20.001
(0.005) (0.011) (0.006) (0.006)
age2 0.007 0.013 20.001 20.000
(0.005) (0.010) (0.005) (0.005)
gender 20.014 20.023 0.038* 0.033
(0.020) (0.045) (0.022) (0.022)
marital 0.000 0.075 20.003 20.007
(0.022) (0.049) (0.025) (0.025)
edu 20.015** 20.042** 20.041*** 20.021*
(0.007) (0.017) (0.008) (0.011)
party 20.004 0.005 20.035 20.030
(0.021) (0.054) (0.026) (0.025)
hukou 20.034 20.176** 20.142*** 20.106***
(0.026) (0.077) (0.033) (0.034)
famsize 20.018*** 20.029*** 20.012** 20.016***
(0.004) (0.009) (0.005) (0.005)
dependency_ratio 0.048** 0.192*** 0.228*** 0.228***
(0.023) (0.055) (0.027) (0.027)
demolition 0.016 20.026 20.020 20.036
(0.031) (0.071) (0.036) (0.038)
house 0.024* 20.050 20.038** 20.023
(0.014) (0.036) (0.017) (0.017)
lnpergdp 20.199 0.206 20.123 20.051
(0.308) (0.793) (0.353) (0.357)
gov_interv 20.030 1.292 1.294 1.048
(0.799) (1.820) (0.935) (0.944)
constant 1.548 22.324 0.317 20.451
(3.431) (8.802) (3.952) (4.301)
LM 162.082***
F/Wald 185.818***
Household fixed effect Yes Yes Yes Yes
Time fixed effect Yes Yes Yes Yes
N 7,946 7,946 7,946 7,946

Note. Robust standard errors clustered at the household level are presented in parentheses. To ensure that the validity of the instrument is robust, the
statistic of ‘‘Kleibergen-Paap rk LM’’ (LM) and ‘‘Kleibergen-Paap Wald’’ (Wald) are used.
*p\.1. **p\.05. ***p\.01.

rural income inequality with IV, as shown in Column (4) Mitchell, 2014). Meanwhile, the DFL of others is
of Table 6. It is possible that DFL is improved by nar- regarded as exogenous to a family’s financial decision
rowing the income gap. For example, low–income house- making. Therefore, this instrumental variable was valid.
holds actively improved their DFL to reduce income Using this method, we were able to obtain consistent
disparities with high–income households. In addition, estimates of the impact of DFL on income inequality in
DFL and income inequality may be correlated with some column (4).
unobservable factors. To address the endogenous issues
mentioned above, we used the instrumental variable
method. This study uses the average level of household Mechanism Analysis
DFL at the community level as an instrument for a Given the significant and negative impact of digital
household’s DFL. Households were excluded when cal- financial literacy on rural income inequality, the crucial
culating the instrument variable. The DFL of one family question that follows is how it affects this inequality?
can be affected by that of other families (Lusardi & The following two aspects are the mainly focus of our
12 SAGE Open

Table 7. DFL and Rural Income Inequality: Mechanism Test.

Dependent variable
(1) Poisson variety of financial assets (2) Risk financial assets (3) Logit-Fe Entrepreneurship

dfl 0.137*** 0.001** 0.005*

(0.026) (0.001) (0.003)
age 20.034 20.001* 20.003
(0.025) (0.001) (0.003)
age2 0.025 0.001 0.001
(0.022) (0.001) (0.003)
gender 0.162* 0.000 0.000
(0.098) (0.002) (0.011)
marital 0.524*** 0.000 0.029*
(0.128) (0.002) (0.016)
edu 0.171*** 0.002*** 0.021***
(0.029) (0.001) (0.004)
party 20.015 20.001 0.004
(0.085) (0.002) (0.010)
hukou 0.256** 0.001 0.007
(0.109) (0.003) (0.014)
famsize 0.061*** 0.001** 0.017***
(0.019) (0.000) (0.002)
dependency_ratio 20.032 20.002 20.052***
(0.121) (0.002) (0.015)
demolition 0.176 0.003 20.004
(0.132) (0.004) (0.016)
house 0.168*** 0.006*** 0.029***
(0.050) (0.002) (0.006)
lnpergdp 2.275 20.003 0.150
(1.589) (0.036) (0.153)
gov_interv 21.995 20.060 0.447
(3.632) (0.121) (0.384)
constant 28.667 0.072
(19.168) (0.411)
Household fixed effect Yes Yes Yes
Time fixed effect Yes Yes Yes
N 7,946 7,946 7,946
R2 .179
Log likelihood 23,561.6598 21,953.2379

Note. The robust standard errors are shown in parentheses.

***, **, and * indicates significance at the 1%, 5%, and 10% levels, respectively.

exploration. As mentioned earlier, we first examine the non-negative integers, to improve the validity of the esti-
effect of digital financial literacy on the allocation of mation, we choose a panel Poisson regression model to
financial assets in rural households, which is measured estimate the effect of digital financial literacy on the vari-
as the variety of financial assets and the ratio of the risky ety of household financial assets. As shown in column
financial assets. Second, we investigate the effect of DFL (1), the coefficient of DFL is 0.137 and is significantly
on the entrepreneurial probability, which is represented positive at 99% confidence interval. According to the
by whether rural household currently engaged in com- characteristics of Poisson distribution, this means that,
mercial and industrial production projects, including after DFL increases by one unit, the number of financial
self-employment, renting, transportation, online stores, asset types held by the household will be 1.147 (e0.137)
and running a business (0 = no; 1 = yes). times that of before. This significant impact implies that
The test results for the rural household financial asset increased digital financial literacy can alleviate the rural
allocation mechanism are presented in column (1) and (2) income gap in reverse. The potential explanation is that
of Table 7. Column 1 presents the regression results on the reduction of the rural income gap needs to be
the variety of financial assets. Since the variable of the achieved through the increase of financial inclusion (Das
variety of financial assets held by rural households is a & Chatterjee, 2022; Qian et al., 2022). One of the direct
Xu et al. 13

effects of digital financial literacy on financial inclusion is developing country, China’s financial digital transforma-
to improve farmers’ ability to get financial products from tion can lead to economic growth, but also provide sup-
the demand side. Yet this ability is sorely lacking among port to alleviate income disparity. However, the financial
low-income rural households (S. J. Chen et al., 2022). As digital transformation has placed higher demands on the
digital financial literacy increases, the variety of financial financial literacy of the population, and the concept of
assets of low-income households will increase more than digital financial literacy has been introduced. In this con-
that of high-income households. This leads to a stronger text, more and more studies have begun to focus on the
income enhancement effect for low-income rural house- importance of digital financial literacy to the develop-
holds (Meikle et al., 2020). From column (2) of Table 7, ment of digital finance. Nevertheless, little attention has
we observe that DFL significantly increase the ratio of been paid to the important role of digital financial lit-
the risky financial assets of rural households. The main eracy in achieving shared prosperity by examining the
reason is that digital financial literacy can increase farm- link between digital financial literacy and rural income
ers’ awareness of risky financial products and reduce disparity, especially in the context of China. To narrow
their risk aversion (Long et al., 2023). In this case, farm- the research gap, this article exploits a recentered influ-
ers will increase the proportion of risky financial assets ence function approach, and a two-way fixed effect panel
held through digital channels. At the same time, risky model to investigate the impact of digital financial lit-
financial assets have high returns, which can help low- eracy on rural income inequality by leveraging nationally
income farmers achieve rapid wealth accumulation and representative household-level data from the 2017 and
thus narrow the income gap with high-income farmers. 2019 CHFS.
Thus, Hypothesis 2 is verified. Empirical results reveal that digital financial literacy
The column (3) of the Table 7 shows the test result of contributes to the reduction of income inequality in rural
the mechanism of digital financial literacy to narrow the areas. This conclusion remains valid after a series of
income gap by improving rural family entrepreneurship robustness checks such as replacing the dependent vari-
probability. Given that the dependent variable is a bin- able, replacing the independent variables, and account-
ary discrete variable, we opted to employ a panel logit ing for endogeneity issues. The mechanism test found
fixed-effects model to evaluate the impact of digital that the above effect is mainly achieved by enriching the
financial literacy on the probability of entrepreneurship. variety of household financial assets, increasing the pro-
According to column (3), the coefficient for digital finan- portion of risky financial assets, and improving the prob-
cial literacy is positive and significantly different from ability of rural household entrepreneurship.
zero in terms of average marginal effects. Further, we
find that the value of the coefficient of DFL is 0.005,
indicating that for an increase of 1 unit in DFL, the Policy Implications
probability of rural households starting a business will The conclusions drawn from our research have impor-
increase by 5%. Digital financial literacy can mitigate tant policy implications for not only China, but also
rural income inequality in this way. It can be explained other developing countries seeking to narrow the income
by the income-generating and spillover effects of entre-
gap in rural areas through the utilization of digital finan-
preneurship. On the one hand, low-income rural house-
cial transformation. Firstly, it is also crucial for the gov-
holds achieve an increase in income through
ernment to improve digital financial literacy when it
entrepreneurship (Ding et al., 2023; Kimhi, 2010); on the
promotes the development of digital finance to achieve
other hand, the employment of low-income rural house-
common prosperity. Governments and financial institu-
holds driven by entrepreneurship will likewise increase
tions can work together to popularize digital financial
the income of low-income households. With these two
knowledge to low-income groups in rural area. Secondly,
effects, rural entrepreneurship will greatly increase the
supporting the development of the investment consulting
income of low-income households, and thus narrow the
industry should be a priority for the government. When
income gap between them and wealthy households
rural households invest through digital financial chan-
(Janssens et al., 2019; Y. Su et al., 2023). Accordingly,
nels, timely investment advisory services can help them
Hypothesis 3 is verified.
optimize household financial asset allocation. Third, the
government should create a good entrepreneurial envi-
Conclusions and Policy Implications ronment and actively support rural low-income groups
to start business. By introducing policies to support
Conclusions entrepreneurship, the government can maximize the
Globally, the digital transformation of finance is acceler- impact of digital financial literacy in decreasing the
ating, which provides opportunities to increase the income gap by increasing the probability of entrepre-
degree of financial inclusion. For the world’s largest neurship in rural households.
14 SAGE Open

Limitations and Future Research Directions Altunbasx, Y., & Thornton, J. (2020). Finance and income
inequality revisited. Finance Research Letters, 37, 1–9.
Because this article is limited by the availability of data,
Azeez, N., & Akhtar, S. (2021). Digital financial literacy and its
there are some shortcomings that could be addressed in determinants: An empirical evidences from rural India. South
further studies. Specifically: (1) considering the representa- Asian Journal of Social Studies and Economics, 11(2), 8–22.
tiveness of the database, this study measured the value of Banks, J., Bassoli, E., & Mammi, I. (2020). Changing attitudes
the recentered influence function of rural household to risk at older ages: The role of health and other life events.
income gap based on the national sample, and future stud- Journal of Economic Psychology, 79, 102208.
ies can measure this value from a regional perspective to Batista, C., & Vicente, P. C. (2020). Improving access to savings
explore the differences in the impact of digital financial lit- through mobile money: Experimental evidence from African
eracy on regional income gap; (2) the relationship between smallholder farmers. World Development, 129, 1–17.
digital financial literacy and rural income disparity may be Bayar, Y., Sezgin, H. F., Ozturk, O. F., & Sasmaz, M. U.
(2020). Financial literacy and financial risk tolerance of indi-
influenced by the village environment in which the farmers
vidual investors: Multinomial logistic regression approach.
live, and future research can further explore the impact of Sage Open, 10(3), 1–11.
digital financial literacy on rural income disparity by con- Berry, J., Karlan, D., & Pradhan, M. (2018). The impact of
trolling for village characteristics variables; (3) due to the financial education for youth in Ghana. World Development,
dynamic nature of the relationship between DFL and 102, 71–89.
rural income inequality, future studies can use long-term Brixiova, Z., Kangoye, T., & Said, M. (2020). Training, human
tracking panel data to further explore this relationship. capital, and gender gaps in entrepreneurial performance.
Economic Modelling, 85, 367–380.
Burgess, R., & Pande, R. (2005). Do rural banks matter? Evi-
Declaration of Conflicting Interests dence from the Indian social banking experiment. American
The author(s) declared no potential conflicts of interest with Economic Review, 95(3), 780–795.
respect to the research, authorship, and/or publication of this Campos, B. C., Ren, Y. J., & Petrick, M. (2016). The impact of
article. education on income inequality between ethnic minorities
and Han in China. China Economic Review, 41, 253–267.
Funding Carpantier, J.-F., Olivera, J., & Van Kerm, P. (2018). Macro-
prudential policy and household wealth inequality. Journal
The author(s) disclosed receipt of the following financial sup- of International Money and Finance, 85, 262–277.
port for the research, authorship, and/or publication of this Chang, D. N., Chen, W. M., Tai, X. J., & Si, Y. W. (2022). The
article: This work was supported by the National Social Science impact of financial literacy on rural household self-employ-
Foundation of China (grant number: 23BGL185), and the ment: The mediating role of financial ability. Emerging Mar-
Shandong Provincial Natural Science Foundation (grant num- kets Finance and Trade, 58(11), 3297–3308.
ber: ZR202103020652). Chen, C. L. (2016). The impact of foreign direct investment on
urban-rural income inequality evidence from China. China
ORCID iD Agricultural Economic Review, 8(3), 480–497.
Guangshun Xu https://orcid.org/0009-0006-0060-1377 Chen, S. J., Liang, M. Y., & Yang, W. (2022). Does digital
financial inclusion reduce China’s rural household vul-
nerability to poverty: An empirical analysis from the per-
Data Availability Statement spective of household entrepreneurship. Sage Open,
The research for this paper utilizes data sourced from the China 12(2), 14.
Household Finance Survey (CHFS), a comprehensive and long- Chroufa, M. A., & Chtourou, N. (2022). Inequality and growth
itudinal study that encompasses a wide range of Chinese com- in Tunisia: New evidence from threshold regression. Social
munities, households, and individuals. The CHFS is dedicated Indicators Research, 163(2), 901–924.
to delivering to scholars an extensive and superior dataset that Chu, Z., Wang, Z., Xiao, J. J., & Zhang, W. (2016). Financial
reflects the current state of China. Interested parties can access literacy, portfolio choice and financial well-being. Social
this data through the CHFS official website, which is available Indicators Research, 132(2), 799–820.
at the provided link (https://chfs.swufe.edu.cn/index.htm). Das, S., & Chatterjee, A. (2022). Impacts of ICT and digital
Additionally, the specific dataset and related programs refer- finance on poverty and income inequality: A sub-national
enced in this paper can be made available upon request to the study from India. Information Technology for Development,
paper’s corresponding author. 29(2–3), 378–405.
De la Vega, C. L., & Volij, O. (2013). A simple proof of Fos-
ter’s (1983) characterization of the Theil measure of inequal-
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