Social Endowment Insurance and Inequality of the Household Portfolio Choice: The Moderating Effect of Financial Literacy

China implements different social endowment insurance policies between urban and rural areas which may cause differences in investment decisions of urban and rural households. Based on the 2013 to 2017 China Household Finance Survey (CHFS) data and the two-way fixed effect panel model, this study aims to investigate the effect of social endowment insurance on the inequality of household portfolio between China’s urban and rural areas and the moderating effect of financial literacy on the relationship between social endowment insurance and household portfolio. The empirical results show that (1) the participation of social endowment insurance is positively related to the possibility of holding risky financial assets and the ratio of risky financial assets; (2) the effect of social endowment insurance is strong and significant in urban areas but weak and not significant in rural areas; (3) the moderating effect of financial literacy on the relationship between social endowment insurance and household portfolio widens the gap of the household portfolio between the urban and rural areas. This paper indicates that the social endowment insurance would affect the household portfolio decisions positively and the financial literacy positively moderates the relationship between social endowment insurance and household portfolio, which just can be applied to urban households. This paper provides evidence of the inequality between the urban and rural households in China and discusses the possible causes of the urban-rural income gap.