Social Insurances and Risky Financial Market Participation: Evidence from China

ABSTRACT

Using four-wave national longitudinal survey data, this study estimates the influence of pension and medical insurance on risky financial market participation for individuals aged ≥ 45 years in China. Three key findings emerge. First, both pension and medical insurance positively affect the probability of holding risky financial assets and their shares. However, both insurances’ influences are almost insignificant when addressing the heterogeneity problem. Second, pension’s positive effect is greater for lower-risk financial assets (bonds) than for higher-risk financial assets (stocks), but the results are reversed for medical insurance. Third, the influences of social insurance differ by age and the hukou group, as well as by the type of pension and medical insurance.

KEYWORDS:

• Pension
• medical insurance
• risky financial asset
• China

Acknowledgments

I am very grateful to the editor and this journal’s anonymous reviewers for their many helpful comments and suggestions. I would like to express my gratitude to Professor Yasuyuki Sawada, Professor Takashi Kihara, and Professor Sanae Ohno for their comments at the workshop held on July 28, 2021, at the Japan Securities Research Institute.

Disclosure Statement

No potential conflict of interest was reported by the authors.

Data Availability Statement

The datasets used in this study are available in Beijing University. http://charls.pku.edu.cn

Notes

1. Regarding public pensions in present China, the Urban Employee Basic Pension Insurance (UEBPI) scheme has been reformed since 1995, covering urban employees. Further, the Urban Resident Social Pension Insurance (URSPI) scheme was established and implemented in 2011, covering urban residents who did not join the UEBPI. Lastly, the New Rural Social Pension Insurance Scheme (NRSPI) was established and implemented in 2009, covering rural residents. It likewise covers pension subsidy to the oldest individuals and poverty-stricken individuals from both urban and rural areas. Since 2014, the Chinese government has been integrating the URSPI and NRSPI into the Urban and Rural Social Residents Pension Insurance (URRSPI) scheme.

2. Regarding the current public medical insurances in China, the Urban Employee Basic Medical Insurance (UEBMI) scheme covers urban workers in enterprises, whereas the Government Medical Insurance scheme covers civil servants, which was reformed in 1998. The Urban Resident Basic Medical Insurance (URBMI) scheme was established and implemented in 2007 and covers urban residents who did not join either of the insurances mentioned above. The New Rural Cooperative Medical Insurance Scheme (NRCMS) was established and implemented in 2003, which covers rural residents. Since 2017, the Chinese government has been integrating the URBMI and NRCMS schemes into the Urban and Rural Resident Basic Medical Insurance Scheme (URRBMI). Medical aid covers poor individuals in both urban and rural areas.

3. Based on the item “Have you been diagnosed with diseases by a doctor?” in the questionnaire, seven types of diagnosed diseases were included: (a) hypertension or dyslipidemia; (b) diabetes or high blood sugar; (c) heart attack or stroke; (d) cancer or malignant tumor; (e) emotional, nervous, psychiatric problems or memory-related diseases; (f) stomach or other digestive diseases; and (g) other diseases. We calculated the number of diseases in each individual.

4. The variable of IADL was constructed as follows. The CHARLS asked the respondents whether they had any difficulty in performing each of the following activities: (a) doing household chores; (b) preparing hot meals; (c) shopping for groceries; (d) taking the right portion of medication on time; and (e) managing money for IADL. Respondents’ responses were scored as follows: I do not have any difficulty = 4; I have difficulty but can still do it = 3; I have difficulty and need help = 2; I cannot do it = 1. The scores were summed and defined as IADL scores (5–20).

5. The variable of BADL was constructed as follows. The CHARLS asked the respondents whether they had any difficulty in performing each of the following activities: (a) dressing; (b) bathing; (c) eating; (d) getting into or out of bed; (e) using the toilet; and (f) controlling urination and defecation for BADL. The respondents’ responses were scored as follows: I do not have any difficulty = 4; I have difficulty but can still do it = 3; I have difficulty and need help = 2; I cannot do it = 1. The scores were summed and defined as BADL scores (6–24).

6. The study used per capita household income and owning housing as income factors’ indices, similar to previous studies (Chen and Ji 2017; Chetty, Sandor, and Szeidl 2017; Cooper and Zhu 2017; Ge et al. 2021). It was found that there may be a correlation between these two variables. We calculated the correlation coefficient of household income and owning housing. We found the value to be 0.175, suggesting that the collinearity problem between these two variables can be ignored.

7. For the dummy variable of social participation, The CHARLS asked respondents, “Have you done any of these activities in the last month?,” listing seven types of social activities: (a) interacting with friends; (b) playing mah-jongg, chess, cards, or going to a community club; (c) providing help to family, friends, or neighbors who do not live with you and did not pay for your help; (d) going to a sport, social, or other club activity; (e) participating in a community-related organization; (f) doing volunteer or charity work; and (g) caring for a sick or disabled adult who does not live with you and does not pay for your help. Seven binary variables of each social participation (SP) activity were constructed by allocating “1” to the answer yes and “0” otherwise. A binary variable of overall SP was constructed by allocating “1” to those participating in at least one type of SP activity and “0” to others.

8. The URRSPI scheme comprises the NRSPI and the URSPI schemes, but the proportion of participants is higher for NRSPI than for URSPI.

9. Based on the CHARLS 2018, the annual average pension benefit is 7,664.29 CNY for UEBPI participants and 1,908.53 CNY for NRSPI participants.

10. Based on the data from the China Medical Care Service Survey of 2008 (Ministry of Health 2009), the ratio of the amount of out-of-pocket (OOP) to total medical care expenditure was 36.8% for participants of UEBMI and 50.7% for participants of URBMI, which covers the urban hukou residents, while it was 73.4% for participants of NRCMS, which covers the rural hukou residents. It suggests that the ratio of OOP was higher for rural residents than urban residents.

11. Based on data from the CHARLS, among individuals aged ≥ 45 years old, the public pension enrollment rate was 50.93% in 2011, 80.52% in 2013, and 88.69% in 2015. However, the public medical insurance enrollment rate was 93.35% in 2011, 95.97% in 2013, and 91.44% in 2015. We are very grateful to this journal’s anonymous reviewer for pointing this out. This will be the focus of our future research.

Additional information

Funding

This research was supported by JSPS (Japan Society for the Promotion Science) KAKENHI: Grant-in-Aid for Scientific Research (B) from the Ministry of Education, Culture, Sports, Sciences and TechnologyJapan [Grand number: 20H01512]