Page 110 - IJPS-11-5

International Journal of
Population Studies Endowment insurance and family consumption in China

(Ando & Modigliani, 1963) and the Permanent Income is directly correlated with current disposable income,
Hypothesis (Friedman, 1957), suggest that pension making the receipt of pension benefits a critical
insurance serves as a substitute for savings, fostering determinant of consumption behavior. Lachowska &
consumption by providing future financial security. Myck (2018) demonstrated that public pension wealth in
According to these models, pension income reduces the Poland serves as a substitute for private savings, a pattern
need for precautionary savings, thereby encouraging similarly observable in China, where participation in social
higher household consumption. insurance correlates with lower household savings rates.

However, Feldstein (1974) argued that expectations of Liu et al. (2023) examined the effects of pension insurance
pension income could lead households to reduce savings and demographic changes on asset allocation, revealing
and increase consumption, particularly in the case of that younger, urban households with pension insurance are
early retirement. In addition, Barro & MacDonald (1979) more inclined to hold risky assets, while older individuals,
contended that social security benefits could mitigate the particularly in rural areas, tend to own safer assets such as
negative consumption effects of taxation by redistributing cash deposits.
wealth to younger generations. These theoretical The Life Cycle Hypothesis proposed by Ando &
underpinnings suggest that pension insurance can have Modigliani (1963) also sheds light on this relationship,
significant effects on household financial behavior, though suggesting that consumer spending is influenced by lifetime
the precise influence depends on various factors such as income, with rational consumers seeking to smooth
the type of pension system and household characteristics. consumption over their lifetimes. This theory posits that
Empirical evidence from China further supports the savings accumulated during working years should suffice
notion that participation in pension insurance generally for post-retirement needs, positioning pension insurance
leads to higher household consumption. Kotlikoff as a substitute for household savings, thereby facilitating
(1982) & Blake (2003) affirmed the positive relationship current consumption. By alleviating concerns about
between pension insurance participation and household retirement and providing future financial security, pension
consumption. Similar findings by Li et al. (2023) found that insurance enhances consumer confidence, which, in turn,
financial literacy plays a crucial role in shaping how pension stimulates current consumption. Pecchenino & Utendorf
insurance influences household portfolio decisions. Urban (1999) suggested that pension insurance facilitates the shift
households, with higher financial literacy, are more likely to toward more sophisticated consumption structures.
invest in risky financial assets, whereas rural households, with The influence of pension insurance on income inequality
lower financial literacy, are less inclined to hold such assets, has also been extensively studied. Upon evaluating China’s
thus exacerbating the urban-rural divide (Friedman, 1957). New Rural Society Endowment Insurance Program,
Moreover, Zheng et al. (2023) provided compelling evidence Shie et al. (2019) found that the program increased
that pension expectations significantly influence household consumption in rural areas, particularly in food, daily
financial behavior. Evidence from Deng et al.’s study (2019) necessities, and utilities. Li & Tang (2024) found that
further reinforced these findings, demonstrating that social the development of pension insurance initially widened
security programs, including pension insurance, reduce the urban-rural income gap, but ultimately contributed
income inequality and alleviate financial uncertainty, thus to its narrowing over time. Further, Lei & Yanping
stimulating household consumption. Wang & He (2024) (2022) demonstrated that pension insurance enhances
extended this body of work, showing that commercial consumption structures in rural areas, particularly in
insurance can decrease precautionary savings, ease liquidity less developed regions, though its impact is weaker in
constraints, and, consequently, enhance consumption. wealthier urban centers. Chen & Han (2024) corroborated
However, the timing and structure of pension payments these findings, showing that pension insurance has a more
complicate the relationship between pension insurance and pronounced effect on consumption among low-income
household consumption. Gale (1998) noted that households households, particularly in economically disadvantaged
facing credit constraints may reduce current consumption regions, with a less significant impact on higher-income
despite future income guarantees, due to the higher families. In addition to its influence on financial behavior,
marginal propensity to consume current income. This pension insurance also affects health-related decisions. Yu
holds particularly true for households in situations where & Xia (2024) discovered that basic endowment insurance
pension payments are irregular or insufficient to meet their increases individuals’ awareness of health risks, which
immediate consumption needs. leads to higher health-related consumption. Similarly,
The Absolute Income Hypothesis, further developed Jin & Shu (2024) revealed that flexible workers who
by Keynes (1936), asserts that consumption expenditure participate in pension insurance tend to exhibit higher

Volume 11 Issue 5 (2025) 104 https://doi.org/10.36922/ijps.4857