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Under the current complex economic situation and the impact of COVID-19, China's capital market reform has entered a critical period, with opportunities and challenges coexisting. One of the important challenges is how to improve the well-being of investors in capital markets. Financial education, which has been offered by financial institutions in many countries in recent years, is likely to become an effective policy instrument to meet this challenge. Using survey data of individual investors from China, this study examines the potential impact of financial education programs offered by financial institutions on individuals' investment diversification. The results show financial education is positively associated with the investment diversification of individual investors. An analysis of the underlying mechanism shows that financial education contributes to the improvement of investment diversification by mitigating limited attention bias, strengthening social trust, and promoting the use of professional investment advisors. These findings suggest that the persistent promotion of financial education programs has a positive effect on optimizing financial asset allocation decisions and improving financial welfare of Chinese households. [ABSTRACT FROM AUTHOR]

Improving household asset allocation (HAA) ability can enable households to increase consumption and promote the steady growth of China's economy. However, HAA decisions in China are suboptimal. This may be related to households' limited financial literacy. Based on 2017 and 2019 China Household Finance Survey data, this study examines the role of financial literacy in improving HAA. It finds that the higher the household's financial literacy, the higher the household's score in the asset allocation evaluation because households with higher financial literacy pay greater attention to economic and financial news and are more inclined to seek advice from investment advisors. Further analysis shows that the optimization effect of financial literacy on HAA is greater in households that are wealthy, higher educated, and located in areas with better regional financial development. In conclusion, helping households improve their financial literacy is an important step toward improving HAA ability. [ABSTRACT FROM AUTHOR]