Abstract

Against the dual backdrop of China’s rapid economic growth and the continuous expansion of the income gap between urban and rural areas, income mobility, as a dynamic indicator for measuring social opportunity equity, is of great significance for breaking through class solidification and promoting common prosperity. Based on the tracking data of the China Household Finance Survey (CHFS) from 2015 to 2019, this paper systematically examines the mechanism and heterogeneity of the impact of financial literacy on household income mobility from the perspective of urban–rural comparison by constructing the Markov transition matrix and the Ordered Probit model. The findings are as follows: first, financial literacy significantly enhances household income mobility in both urban and rural areas, but there is a significant urban–rural difference. The baseline regression shows that financial literacy has a stronger promoting effect on urban households, while the endogeneity test further reveals that there is an underestimation of urban–rural heterogeneity in its impact; second, the mechanism test shows that financial literacy promotes household income mobility by influencing financial behaviour; third, from the perspective of heterogeneity analysis, regional heterogeneity, the effect of urban households and the eastern and northeastern regions is more prominent. Income heterogeneity, the role of financial literacy in promoting income mobility, is particularly prominent among low-income groups in both urban and rural areas. This study not only provides an analytical framework from static to dynamic for understanding the economic empowerment effect of financial literacy, but also deepens the academic discussion on how financial capacity promotes opportunity equity, and its findings on the heterogeneity between urban and rural areas, regions, and income groups offer crucial micro-evidence for formulating more targeted differentiated policies that can effectively avoid the Matthew effect.

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