The Influence of Mental Accounts and Housing Wealth Effect on Household Finance Asset Allocation

With the progress of urbanization in China, the demand for land for urban construction continues to increase. Many households are involved in government land acquisition and housing demolition issues. The aim of this study is to examine the impact of the demolition of residential houses on family financial risk asset investment. We analysed data from the 2017 China Household Finance Survey, including 1,046 households that experienced demolition and received monetary compensation and 1,137 households that experienced demolition and received housing compensation. The results show that compensation for demolished homes and high demolition compensation significantly increase the possibility of family investment in financial risk assets and also increase the proportion of family financial risk asset investment. The underlying logic is that the more compensation received by the family, the more disposable income is available, and under the influence of psychological accounts, the high demolition compensation, as a “windfall,” leads to a decrease in its psychological value, thereby motivating families to make more financial investments.