Financial Literacy, Environmental Literacy, and Environmental Related Financial Preference - The Case of China

Abstract: This paper describes a survey of a sample of Chinese individuals regarding their financial literacy, environmental literacy, attitudes toward ESG, and environmental related financial preference to investigate if pro-investment attitudes are related to financial decision-making. The data revealed that individuals with higher financial knowledge (FL) also have higher environmental knowledge (EL) and the effect is stronger among consumers who incorporate sustainability factors into their investment selection. Moreover, there is a large gender gap in financial and environmental literacy in China. Male respondents have higher FL and are more likely to participate in the stock market, while females have higher EL and stronger environmental beliefs. This results from different levels of financial and environmental engagement and females' lack of confidence. By segmenting respondents into three groups according to their preferred position on the ESG-efficient frontier, it is found that people with stronger environmental beliefs reflect their preference in their financial decision-making, and gender enhances the relationship. Regarding market participation, the opposite effect was found. Female investors have a clear preference for sustainable investing, but they fail to act on it by actively engaging with the market. Furthermore, the results show that financially literate investors are less likely to hold green investments and that some people hold green investments for purely non-peculiar reasons.