Can the use of digital finance promote the enhancement and quality improvement of household consumption among farmers?

Xu, Sheng; Liu, Xichuan; Zhang, Lu; Xiao, Yu Article Can the use of digital finance promote the enhancement and quality improvement of household consumption among farmers? Economies Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Xu, Sheng; Liu, Xichuan; Zhang, Lu; Xiao, Yu (2024) : Can the use of digital finance promote the enhancement and quality improvement of household consumption among farmers?, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 12, Iss. 12, pp. 1-20, https://doi.org/10.3390/economies12120325 This Version is available at: https://hdl.handle.net/10419/329252 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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Economies 12: 325. https://doi.org/ 10.3390/economies12120325 Academic Editor: Sanzidur Rahman Received: 1 November 2024 Revised: 18 November 2024 Accepted: 22 November 2024 Published: 27 November 2024 Correction Statement: This article has been republished with a minor change. The change does not affect the scientific content of the article and further details are available within the backmatter of the website version of this article. Copyright: © 2024 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). Article Can the Use of Digital Finance Promote the Enhancement and Quality Improvement of Household Consumption Among Farmers? Sheng Xu , Xichuan Liu *, Lu Zhang and Yu Xiao College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, China; [email protected] (S.X.); [email protected] (L.Z.); [email protected] (Y.X.) *Correspondence: [email protected] Abstract: The key strategic point for facilitating domestic circulation is to enhance and expand household consumption. Based on a survey of 1080 farming households in Hunan, Hubei, and Jilin Provinces, this study examines the impact of digital finance use on the scale and structural upgrading of household consumption among farmers. The findings indicate that digital finance use effectively expands the scale of household consumption and promotes structural upgrades. The results remain robust through various endogenous and robust methods. Heterogeneity analysis reveals that the benefits of digital finance use are greater for middleto high-income groups and those with lower education levels, indicating the presence of a digital divide effect. Furthermore, the construction of village communities, skill training, improvements in village logistics services, and the availability of medical clinic facilities can enhance the consumption-promoting effects of digital finance use. Mechanism analysis shows that digital finance primarily operates through alleviating credit constraints, enhancing risk prevention, and improving financial returns to influence the scale and structural upgrading of household consumption. This study provides policy insights for rural revitalization and unlocking the consumption potential of rural residents. Keywords: use of digital finance; consumption upgrading; credit constraints; risk prevention; financial returns 1. Introduction In the context of accelerating the construction of a new development pattern that prioritizes domestic circulation and promotes mutual reinforcement between domestic and international circulations, household consumption is increasingly playing a stabilizing role as a “ballast stone” for China’s economic stability. In 2021, the Central Document No. 1 proposed the imperative of “comprehensively promoting rural consumption”, identifying the rural consumption market as a core focus for driving high-quality economic development under new circumstances (Zhang and Xu 2019). In recent years, the consumption level of rural households has continued to rise, accompanied by a shift in consumption concepts that has led to increasing diversification and personalization of household consumption structures. However, challenges, such as the persistent decline in the overall household consumption rate and the slowing pace of consumption structure upgrading, have gradually emerged. A key reason for this is the neglect of the micro-level consumer decision-making process. According to data released by the National Bureau of Statistics of China, in 2020, the per capita consumption expenditure of rural residents was 13,713 yuan, with a nominal growth of 2.9%. However, after adjusting for price factors, there was an actual decline of 0.1% 1 . This indicates that the real consumption expenditure of rural residents decreased in 2020 2 . Traditionally, household consumption behavior, as the basic unit of socioeconomic activity, is viewed as rational in economic theory, based on the assumption that households Economies 2024,12, 325. https://doi.org/10.3390/economies12120325 https://www.mdpi.com/journal/economies Economies 2024,12, 325 2 of 20 possess sufficient information to smooth consumption and maximize utility over their lifecycles (Fang and Yu 2014). However, many rural households exhibit significant irrational behaviors. For instance, rural families generally lack systematic financial knowledge, creating a knowledge gap that hinders their ability to effectively assess risks and returns, leaving them susceptible to misinformation or impulsive investment decisions. Due to the absence of stable income sources and social security, rural residents tend to favor low-risk or even risk-free assets, such as savings or gold, rather than allocating funds to higher-return but riskier investment products. This excessive risk aversion often results in suboptimal financial returns, thereby limiting wealth accumulation potential and contributing to significant welfare losses (Peng and Zhu 2018). What, then, leads to decision-making errors in economic behavior among rural households? Existing research suggests that the use of digital financial tools and services may influence household financial decisions and is closely related to various financial behaviors (Anderson et al. 2017). A low level of digital finance usage could be a significant factor contributing to erroneous or irrational economic decision-making among these households (Chamon and Prasad 2010). Whether the improvement in the level of digital finance usage can effectively promote the expansion and quality enhancement of household consumption among farmers remains to be further explored. On one hand, as digital finance increasingly penetrates rural financial markets and retail finance, micro-level consumers are exposed to more digital financial products, asset protection services, and broader financial planning options. At the same time, market risks are gradually shifting toward individuals, leading rural households to increasingly rely on digital financial tools and financial knowledge for asset management and financial decision-making (Jiang et al. 2019). Additionally, farmers must navigate complex and irreversible financial decisions, such as retirement planning and mortgages (Song et al. 2017). These decisions require them to make different forecasts about current income, future expenditures, and potential economic shocks based on household budget constraints and financial conditions, as well as to allocate reserve assets reasonably to mitigate risks. On the other hand, faced with traditional investment options, such as stocks, funds, bonds, and derivatives, alongside diverse, personalized, and refined digital financial products and services, farmers need to filter and analyze a wealth of complex information, weigh the pros and cons, and make rational decisions. This not only demands a high level of financial knowledge but also necessitates sufficient proficiency in digital financial tools (Wang et al. 2021). Existing research on the relationship between digital finance usage and household consumption primarily focuses on the impacts of financial knowledge or smartphone usage on farmers’ consumption behavior. However, these factors are merely important components or subsets of digital finance usage (Meng et al. 2019). First, farmers’ access to digital financial tools, products, and services relies on terminal devices, such as smartphones and computers. Moreover, their use of digital finance may produce a “learning by doing” effect, improving their financial literacy, including the allocation of household financial assets and financial knowledge deficiencies, as they learn to use these tools. From a micro-perspective, current studies often analyze data from individual provinces without adequately considering inter-regional differences (Chen et al. 2021), or they may focus solely on the impact of a single tool, such as mobile payments, on rural residents’ consumption (Allais 1952), neglecting the complexity of digital financial tools and services and their high demands for financial knowledge (Yin et al. 2015a;Chamon and Prasad 2010). Second, from the perspective of technological means and consumption scenarios, the improvement of household consumption through digital finance is reflected in new consumption and payment scenarios. Changes in consumption expenditure levels and structures are also influenced by the “learning by doing” effect, bridging the gap to the consumption decision-making levels of households with higher financial literacy. Third, from the perspective of transmission mechanisms, digital finance usage not only expands consumption methods and scenarios but also addresses how to reposition household consumption decision-making amidst Economies 2024,12, 325 3 of 20 traditional financial credit constraints through methods such as “learning by doing” and the precise identification of digital finance technology targets, thereby boosting consumer confidence. Focusing solely on mobile payments and proficiency in smartphone usage overlooks farmers’ new understandings of household asset portfolios, credit constraints, and risk prevention within the framework of bounded rationality in consumption decisions. Overall, while current domestic and international research on digital finance usage and household consumption provides insightful ideas for this paper, further expansion in this field is still necessary. Compared to existing research, the marginal contributions of this paper are as follows: (1) While previous studies on household consumption upgrading primarily focus on macroand industry-level perspectives, this paper examines the changes in farmers’ consumption concepts and the optimization of consumption decision-making from a micro-level perspective. (2) This paper expands the mechanisms through which digital finance usage influences farmers’ consumption decisions by analyzing three aspects: alleviating credit constraints, enhancing risk prevention, and increasing financial returns. (3) Innovatively, this paper explores the differences in the impact of digital finance usage on household consumption based on variations in village-level infrastructure and basic services, offering strong practical implications. 2. Theoretical Analysis and Research Hypothesis 2.1. The Impact of Digital Finance Usage on Household Consumption Behavior Among Farmers Digital finance refers to the use of digital technologies (such as mobile payments, internet banking, and big data analytics) to deliver convenient, efficient, and low-cost financial services, particularly targeting groups that have traditionally faced difficulties accessing financial services, such as rural residents and low-income populations. Currently, farming households face an increasingly complex economic and financial decision-making environment. They not only need to make choices about the allocation of existing resources but also must make predictions about future income expectations and macroeconomic changes, especially in the decision-making process regarding expenditures on developmentaland survival-oriented consumer products or services. Digital financial services and tools, primarily including digital payments, digital credit, digital wealth management, and digital insurance, provide crucial support for farming households’ production investments and consumption decisions (Yin et al. 2015b;Wen and Meng 2012;Huang and Hao 2021;Meng and Yan 2020;Luo 2020). However, farming households with low levels of digital finance usage often need to expend significant time and effort, and even incur economic costs, to acquire, filter, and analyze relevant information to mitigate issues of information asymmetry (Lan and Yang 2021;Zou and Wang 2020;Xiang 2018). In actual economic and consumption decision-making, farmers not only need to correctly understand relevant economic concepts but also possess basic computational skills. Farmers need to reasonably plan their household income, expenditures, and savings to optimize resource allocation. Without basic computational skills, they may fail to accurately estimate the proportion of expenses to income, leading to resource wastage or overconsumption. Additionally, farmers may overly rely on intuition in their consumption decisions due to a lack of computational ability, resulting in irrational choices. For instance, they may misjudge the actual value of discounted goods or be misled into participating in high-risk financial products. In the face of uncertainty shocks, those farmers with higher levels of digital finance usage are more likely to access formal credit (Du 2017;Li and Xu 2022), which also helps achieve diversified allocation and decentralized combinations of household assets, thereby unlocking household consumption potential (Yi and Zhou 2018;Zhou and Fan 2018;Ma and Ning 2017). On the other hand, the structure of household consumption is becoming increasingly diversified, gradually shifting from basic consumption to developmentaland enjoyment-oriented consumption (Shi and Wang 2017;Zhang et al. 2020;Mao et al. 2019; Zhang et al. 2021). This developmentaland enjoyment-oriented consumption exhibits characteristics of diversification, personalization, quality enhancement, refinement, and Economies 2024,12, 325 4 of 20 digitization, closely integrated with digital financial tools and services, deeply embedding into digital technology and new consumption scenarios. Farmers need to possess strong digital finance knowledge and skills to effectively distinguish and utilize these tools (He et al. 2020;Zhang and Li 2021;Klapper et al. 2013). In summary, an increase in the level of digital finance usage not only impacts the overall consumption of farming households but also makes developmentaland enjoyment-oriented consumption more reliant on digital finance, thereby contributing to the expansion and quality enhancement of household consumption. Based on the above, we propose Research Hypothesis 1: H1: The use of digital finance will increase the consumption level of farming households and promote the expansion and quality enhancement of their consumption. 2.2. The Credit Constraint Mechanism Through Which Digital Finance Usage Affects Household Consumption Behavior Among Farmers The development of digital finance not only breaks the limitations of traditional credit models but also possesses advantages in credit efficiency while expanding its derivative functions based on basic functionalities (Mouna and Jarboui 2015;Nan et al. 2020;Li 2020). With advancements in cutting-edge technologies, such as big data and cloud computing, digital finance has been rapidly promoted in rural areas, significantly improving the accessibility and convenience of financial services, and greatly enhancing farmers’ subjective willingness to consume, thereby driving the prosperity of the consumption market. According to liquidity constraint theory, insufficient development in financial markets prevents some consumers from achieving optimal cross-lifecycle consumption. On one hand, from the perspective of borrowing willingness and channels, the level of digital finance usage reflects farmers’ ability to utilize financial knowledge, digital payments, and skills for resource allocation to ensure sustained income. Farmers with lower levels of digital finance usage often struggle to access sufficient information about formal financial channels and typically rely on informal lending to meet their credit needs (Dinkova et al. 2021;Agarwal et al. 2017). On the other hand, an increase in digital finance usage helps improve farmers’ preferences for borrowing channels, enhancing their willingness to use formal financial lending and increasing the availability of loans (Yin et al. 2024;Zhan and Wang 2023; Lusardi and Tufano 2015). From the perspective of consumption potential, digital finance, through credit services such as “Huabei” and “Baitiao”, assists farmers in identifying digital financial products and services that match their economic capabilities and consumption preferences, thus avoiding excessive borrowing that could negatively impact future income expectations (Wang et al. 2016). In terms of repayment ability, farmers with lower digital finance usage often have weaker credit management skills, making them prone to excessive debt, overdue loans, and debt accumulation to meet minimum repayment requirements (Qin et al. 2016). In contrast, farmers with higher levels of digital finance usage tend to have stronger financial literacy, enabling them to manage household cash flow and balance expenditures more effectively, resulting in a lower probability of overdue loans. Moreover, these farmers have greater income growth potential and a stronger repayment capacity (Dohmen et al. 2018). In summary, deepening the level of digital finance usage enhances farmers’ willingness to consume, broadens borrowing channels, and improves borrowing capacity, allowing groups previously excluded from financial services more opportunities to access low-cost, tailored digital financial products and services. This not only facilitates intertemporal smoothing of consumption but also helps realize the potential for developmentaland enjoyment-oriented consumption. Based on the above, we propose Research Hypothesis 2: H2: The use of digital finance promotes the expansion and quality enhancement of household consumption among farmers by alleviating credit constraints. Economies 2024,12, 325 5 of 20 2.3. The Risk Prevention Mechanism Through Which Digital Finance Usage Affects Household Consumption Behavior Among Farmers Under conditions of uncertainty, participating in insurance is one of the important ways for residents to seek effective risk avoidance and enhance their preventive capabilities. The social insurance system has a broad coverage, benefiting a larger population and primarily aimed at meeting the basic living needs of farmers. In contrast, commercial insurance serves as a strong supplement to social insurance, filling the gaps not covered by social security and providing deeper protection for assets and personal safety, thereby significantly enhancing farmers’ ability to cope with risks. As participants in the insurance market, farmers need a certain level of financial knowledge to understand complex insurance terms and calculate benefits, and the extent of digital finance usage plays a crucial role in filtering and analyzing insurance information (Cao et al. 2020). On one hand, farmers must comprehensively assess the likelihood of various potential risks and the welfare losses that may arise from them. Farmers with higher levels of digital finance usage typically possess stronger risk identification capabilities (Wu et al. 2018), enabling them to effectively avoid and diversify potential economic and financial risks through participation in insurance. On the other hand, farmers with greater digital finance usage face lower information asymmetry and information collection costs when selecting insurance, allowing them to accurately understand their risk profiles and seek better financial management solutions at lower costs (Huston 2012). For example, health insurance and accident insurance can ensure that a household’s long-term income expectations do not significantly decline due to major illnesses or accidents. Meanwhile, pension insurance and life insurance cover the entire consumption cycle of a household, enhancing future income expectations and thereby unlocking consumption potential. Against the backdrop of low levels of rural social security and medical coverage, participation in commercial health insurance and pension insurance can substantially improve income security, increase current consumption levels, and enhance household welfare. In summary, increasing the level of digital finance usage helps enhance farmers’ willingness and extent of participation in commercial insurance, strengthens their risk prevention capabilities in the face of uncertainty, reduces the motivation for precautionary savings, and thereby stimulates the release of consumption potential. Based on this, we propose Research Hypothesis 3: H3: The use of digital finance promotes the expansion and quality enhancement of household consumption among farmers by improving their risk prevention capabilities. 2.4. The Wealth Management Benefit Mechanism Through Which Digital Finance Usage Affects Household Consumption Behavior Among Farmers Currently, asset distribution in China is uneven, with a predominance of housing assets and a relatively low allocation of financial assets, such as stocks, funds, and bonds (Deuflhard et al. 2019). This situation, characterized by a high proportion of non-financial assets and poor liquidity, is detrimental to wealth appreciation and the enhancement of household welfare. Tools such as digital finance, digital insurance, and digital payment platforms have provided important channels for farmers to sell agricultural products, while digital wealth management products have broadened the ways in which farmers can diversify their asset portfolios. This diversification reduces the potential risks associated with a narrow asset allocation, avoiding an increased demand for precautionary savings due to poor future income expectations, thereby releasing the consumption potential of farmer households. An increase in the level of digital finance usage helps enhance farmers’ understanding of the risks and returns associated with digital financial products, reducing investment errors and improving their ability to make rational financial decisions (Abreu and Mendes 2010). On one hand, effective asset management for farmer households requires a certain level of financial knowledge and information-seeking ability. Households with higher levels of digital finance usage typically have more resources and stronger capabilities in assessing digital financial risks, facing lower information and transaction costs. As a result, Economies 2024,12, 325 6 of 20 they are more likely to participate in financial markets and risk investments, accelerating wealth accumulation through the acquisition of financial returns and risk rewards (He and Song 2020;Wu and Lü 2013). On the other hand, an increase in digital finance usage can change household risk preferences, promote entrepreneurship, and encourage families to allocate more assets to financial markets, thus achieving portfolio diversification (Gan et al. 2018;Liu 2021). In summary, an increase in the level of digital finance usage aids farmer households in making diversified investment decisions, stabilizing future income expectations, enhancing current income levels, and improving household welfare, which in turn promotes the expansion and quality enhancement of household consumption. Based on this, we propose Research Hypothesis 4: H4: The use of digital finance promotes the expansion and quality enhancement of household consumption among farmers by increasing financial management returns. Based on the literature and theoretical analysis above, the use of digital finance— through tools such as digital credit, digital insurance, digital wealth management, and digital payment—optimizes financing, investment, and wealth management behaviors. This alleviates financing constraints, enhances households’ risk control capabilities, and achieves wealth appreciation, thereby increasing the consumption scale of rural households and promoting the optimization and upgrading of consumption structure. The mechanisms through which digital finance usage affects household consumption among farmers are illustrated in Figure 1. Economies 2024, 12, x FOR PEER REVIEW 6 of 20 households requires a certain level of financial knowledge and information-seeking ability. Households with higher levels of digital finance usage typically have more resources and stronger capabilities in assessing digital financial risks, facing lower information and transaction costs. As a result, they are more likely to participate in financial markets and risk investments, accelerating wealth accumulation through the acquisition of financial returns and risk rewards (He and Song 2020; Wu and Lü 2013). On the other hand, an increase in digital finance usage can change household risk preferences, promote entrepreneurship, and encourage families to allocate more assets to financial markets, thus achieving portfolio diversification (Gan et al. 2018; Liu 2021). In summary, an increase in the level of digital finance usage aids farmer households in making diversified investment decisions, stabilizing future income expectations, enhancing current income levels, and improving household welfare, which in turn promotes the expansion and quality enhancement of household consumption. Based on this, we propose Research Hypothesis 4: H4: The use of digital finance promotes the expansion and quality enhancement of household consumption among farmers by increasing financial management returns. Based on the literature and theoretical analysis above, the use of digital finance— through tools such as digital credit, digital insurance, digital wealth management, and digital payment—optimizes financing, investment, and wealth management behaviors. This alleviates financing constraints, enhances households’ risk control capabilities, and achieves wealth appreciation, thereby increasing the consumption scale of rural households and promoting the optimization and upgrading of consumption structure. The mechanisms through which digital finance usage affects household consumption among farmers are illustrated in Figure 1. Digital Finance Digital lending Digital insurance Digital wealth management Digital payment Household consumption of farmers Level of consumption Survival consumption Develop consumption Enjoy consumption Financing and lending behavior Insurance participation and coverage behavior Investment and wealth management behavior Alleviate financing constraints Enhance risk control capabilities Diversify wealth channels Direct impact Figure 1. Mechanism diagram of the impact of digital finance usage on household consumption among farmers. 3. Data, Models, and Variables 3.1. Data The data for this study come from field visits and surveys conducted by the research team in July and August 2022 in rural areas of Hunan and Hubei Provinces in Central China, as well as Jilin Province in Northeast China. Respondents included household heads, other family members involved in economic consumption decisions, and village leaders or committee members. The selection criteria for the surveyed regions involved randomly choosing four counties (or cities) from each of the three provinces, followed by randomly selecting three townships within each county. Subsequently, three villages were randomly chosen from each township, and questionnaires were distributed to ten households in each village. Additionally, the research team designed a village questionnaire, collecting data from a total of 36 village surveys across the 4 counties, 3 townships, and 3 villages. Through random sampling and one-on-one questionnaire interviews, a total of 1080 questionnaires were distributed. After screening based on key variables, 1080 valid Figure 1. Mechanism diagram of the impact of digital finance usage on household consumption among farmers. 3. Data, Models, and Variables 3.1. Data The data for this study come from field visits and surveys conducted by the research team in July and August 2022 in rural areas of Hunan and Hubei Provinces in Central China, as well as Jilin Province in Northeast China. Respondents included household heads, other family members involved in economic consumption decisions, and village leaders or committee members. The selection criteria for the surveyed regions involved randomly choosing four counties (or cities) from each of the three provinces, followed by randomly selecting three townships within each county. Subsequently, three villages were randomly chosen from each township, and questionnaires were distributed to ten households in each village. Additionally, the research team designed a village questionnaire, collecting data from a total of 36 village surveys across the 4 counties, 3 townships, and 3 villages. Through random sampling and one-on-one questionnaire interviews, a total of 1080 questionnaires were distributed. After screening based on key variables, 1080 valid questionnaires were obtained, with 360 from Hunan, 360 from Hubei, and 360 from Jilin Provinces. The farmer questionnaire primarily covered respondents’ personal information, family circumstances, detailed consumption and expenditure data, and their usage of digital finance. The village Economies 2024,12, 325 7 of 20 questionnaire focused on economic and demographic information, natural resources and environmental data, infrastructure conditions, and internet and community information. 3.2. Models To examine the impact of residents’ digital finance usage on the scale and structure of household consumption among farmers, an OLS (ordinary least squares) model was established. The specific form of the model was as follows: Consum_totali=α+βFin_f actori+λXi+εi(1) Consumij =α+βFin_factori+λXi+εi(2) In the equation, Consumi represents the total consumption expenditure of household i, and Consumij denotes the expenditure of household iin category j. Fin_factori is the core explanatory variable, indicating the index of digital financial use by farmers. Xi represents control variables at the household head level, family level, and village level, while εi is the unobservable error term. 3.3. Variables 3.3.1. Dependent Variable: Household Consumption of Farmers Household consumption expenditures of rural households typically encompass multiple categories, including food, daily necessities, clothing, cultural and entertainment expenses, medical insurance, and transportation and communication costs. This study used the total scale of household consumption (Consum_total) to represent the magnitude of consumption. The overall trend in the structure of resident consumption indicates a shift from survival-oriented consumption to development-oriented and enjoyment-oriented consumption. Based on the existing research (Yin and Zhang 2019), this study categorized household expenditures on food, daily necessities, utilities, and other goods and services as survival-oriented consumption (Consum1), transportation and communication, education, medical services, and related services were classified as development-oriented consumption (Consum2), while public welfare, social interactions, entertainment, and related services were categorized as enjoyment-oriented consumption (Consum3). Additionally, considering the characteristics of durable goods—such as low purchase frequency, long consumption cycles, and high single expenditures, along with the challenges in accurately calculating the actual consumption of durable goods over different years —this study excluded housing maintenance and utility repairs from survival-oriented consumption to obtain a measure of survival-oriented consumption that does not include durable goods. Similarly, expenditures on automobile purchases and furniture were deducted from development-oriented consumption to arrive at a measure of development-oriented consumption that excludes durable goods. Furthermore, high-value appliances and other durable goods were excluded from enjoyment-oriented consumption, resulting in a measure of enjoyment-oriented consumption that does not include durable goods. 3.3.2. Explanatory Variable: Digital Financial Usage Currently, there are two main methods for measuring digital financial usage: the first method involves assessing respondents’ subjective level of digital financial usage based on their familiarity with and utilization of digital financial products and services, while the second method evaluates the objective level of digital financial usage by scoring respondents’ answers to core financial knowledge questions. In this study, the explanatory variable was digital financial usage, with a focus on analyzing rural households’ engagement with internet lending, internet wealth management, internet insurance, and digital financial literacy. The measurement of digital financial usage was conducted through field surveys and questionnaires. The questionnaire included relevant questions about the respondents’ usage of digital financial services, as detailed in Table 1. For each type of digital financial service, a value of 1 was assigned if the household uses the service, and 0 if they do Economies 2024,12, 325 8 of 20 not. Similarly, a value of 1 was assigned for correct responses regarding digital financial knowledge, and 0 for incorrect responses, resulting in five dummy variables. Following this assignment scheme, factor analysis was employed to reduce the dimensionality of the data, resulting in an index for digital financial usage (Fin_factor). The assigned values for the five dummy variables were subjected to Bartlett’s test and the KMO test. The KMO value was 0.677, and the significance value in the Bartlett spherical test was 0.000, meeting the criterion of being less than 0.01. These results indicate that the dataset was suitable for factor analysis. Additionally, following the approach of Abreu and Mendes, the total score for digital financial usage was measured by counting the number of correct responses to the aforementioned questions. This method, however, does not account for the varying importance of different digital financial usage questions, and will later be used as a robustness check. Table 1. Indicators of digital financial usage and their descriptions. Question Option Have you ever used internet consumer loans? 1 YES; 2 NO Do you have experience with managing investments through internet channels? 1 YES; 2 NO Have you purchased internet insurance? 1 YES; 2 NO Can you distinguish between a credit card and a debit card? 1 YES; 2 NO Do you know how to check your personal credit report online? 1 YES; 2 NO 3.3.3. Control Variables Grounded in the research question and practical considerations, this study incorporates the following control variables: (1) Household head characteristics—age of the household head and its squared term divided by 100 (age and age 2 ), gender, education level, marital status, self-rated health, and chronic illness status. (2) Economic characteristics of the household—household size, net household income, household debt, and household liquid cash. (3) Regional characteristics—village population and per capita net income of the village. Table 2provides a detailed explanation of each variable. Furthermore, Table 2presents the preliminary statistical information for the variables. The average total consumption of farming households (Consum_total) was 28,297, with a maximum of 520,000 and a minimum of 100, indicating significant disparities in the consumption scale among farming households. In terms of consumption structure, the mean values for survival-type consumption and enjoyment-type consumption were lower than that for development-type consumption, with development-type and enjoyment-type consumption accounting for a relatively high proportion. Additionally, regarding the digital financial usage indicators, the maximum and minimum values were 4.626 and − 0.325, respectively, highlighting considerable differences in digital financial capabilities among farmers. This indicates that the lack of digital computation skills and basic financial knowledge among farmers hinders their digital financial capabilities. The average subsistence consumption of rural households was 5357.903, the average development-oriented consumption was 14,409.59, and the average enjoyment-oriented consumption was 8728.027. Development-oriented consumption had the highest mean value, which also confirmed that rural China is currently in a period of rapid development, with education, healthcare, and daily necessities constituting the primary components of household consumption expenditures. Additionally, the average age of household heads was 56.755 years, reflecting the accelerating trend of aging in rural China. The average education level was only 8.044 years, indicating a relatively low level of labor quality in rural areas. These two factors collectively highlight a research direction: whether improving digital finance usage can enhance household economic conditions and promote consumption growth. Economies 2024,12, 325 15 of 20 commercial insurance and their risk prevention capabilities significantly improved, thus validating Research Hypothesis 3. The study used the indicator of “financial investment returns of rural households” to examine the mechanism through which digital financial capability affects household consumption scale. According to the results in Columns (3) and (6) of Table 8, digital financial capability significantly enhanced the financial investment returns of rural households, validating Hypothesis 4. 4.5. Heterogeneity Analysis 4.5.1. Analysis Based on Differences in Income Levels and Education Levels To reveal the relationship between digital financial use and household consumption levels among families with different income endowments, this study categorizes households into three groups: low income, middle–high income, and high income. The subsample tests based on household income classifications are presented in Columns (1) to (3) of Table 9. The results indicate that increased digital financial usage significantly positively affected overall consumption levels for middleand high-income families, while it had a positive but insignificant impact on low-income families. This suggests that the promoting effect of digital financial use on household consumption is influenced by the family’s income level. Furthermore, this study examined the heterogeneity in the impact of digital financial use on household consumption based on education levels. Respondents’ educational attainment was divided into three categories: low, medium, and high educational levels, with results shown in Columns (4) to (6) of Table 9. The influence of digital financial use on household consumption was greater among individuals with lower to medium education levels. For each unit increase in digital financial usage, household consumption expenditure rose by 6499 yuan and 8607 yuan, respectively. Table 9. Heterogeneity Test I: based on differences in income and education levels. Variables (1) (2) (3) (4) (5) (6) Low Income Middle Income High Income Low Education Middle Education High Education Fin_factor 637.0 5594 * 5096 ** 6499 * 8607 ** 3250 ** (1871) (2980) (2211) (3532) (3327) (1556) Controls YES YES YES YES YES YES Constant 20,464 −453.9 −92,632 ** −39,847 −13,374 8899 (19,744) (36,850) (43,005) (35,700) (40,090) (21,470) Observations 270 270 540 111 208 761 R-squared 0.349 0.138 0.481 0.553 0.728 0.335 Note: *, **, and *** indicate significance at the 10 percent, 5 percent, and 1 percent levels, respectively, and values in parentheses are standard errors. 4.5.2. Based on Differences in Community Basic Service Levels When enhancing the level of digital financial usage and financial literacy in households through financial education programs, special attention should be paid to the scientific design of policies and the precision of their implementation. This leads to a new question: how do the construction and promotion of foundational and developmental facilities and services in villages, such as community building, skills training, logistics delivery, and medical services, create group differences in the impact of digital financial usage on household consumption? In the context of rural revitalization, how can villages enhance the role of digital financial usage in promoting household consumption? To address this, we examined the differences in community information group chat, skills training, logistics delivery, and medical services, with results presented in Table 10, Part A and Part B. Among them, Columns (1) and (2) represent the grouped differences based on the number of community information group chats, with groups having three or fewer and more than three. Columns (3) to (5) illustrate the group differences based on the annual Economies 2024,12, 325 16 of 20 number of training participants in villages, categorized as 0–10, 10–30, and over 30 individuals. Columns (6) and (7) show the differences between groups where delivery services can and cannot reach the doorstep. Finally, Columns (8) to (10) reflect the group differences based on the number of standardized medical clinics in villages, categorized as 0, 1, and more than 1 clinic. Table 10. Heterogeneity Test II: the effects of community building. Part A: Based on Community Building and Skills Training Variables (1) (2) (3) (4) (5) Low Community High Community Low Train Meddle Train High Train Fin_factor 13,505 *** 11,378 *** 13,786 *** 12,497 *** 7195 ** (1955) (1651) (1976) (1830) (3217) Controls YES YES YES YES YES Constant 27,065 *** 29,749 *** 28,326 *** 28,092 *** 28,370 *** (1344) (1238) (1331) (1530) (1993) Observations 560 520 600 320 160 R-squared 0.079 0.084 0.075 0.128 0.031 Part B: Based on Logistics and Medical Services Variables (6) (7) (8) (9) (10) Delivery_YES Delivery_NO 0_Clinic 1_Clinic 2_Clinic Fin_factor 13,377 *** 11,450 *** 6382 ** 11,553 *** 22,457 *** (1961) (1679) (2737) (1487) (3968) Controls YES YES YES YES YES Constant 31,959 *** 26,250 *** 22,141 *** 28,847 *** 32,098 *** (1588) (1114) (1586) (1111) (2774) Observations 380 700 160 780 140 R-squared 0.110 0.062 0.033 0.072 0.188 Note: *, **, and *** indicate significance at the 10 percent, 5 percent, and 1 percent levels, respectively, and values in parentheses are standard errors. From Columns (1) and (2) in Table 10, it can be observed that households with higher levels of digital finance usage were better able to enhance their consumption levels when the number of community information group chats was limited. With fewer community information group chats, channels for information exchange and resource sharing are constrained, reducing farmers’ opportunities to access market information (such as product prices and consumption opportunities) and financial services. Digital finance, through tools such as mobile payments, online credit, and e-commerce, provides farmers with direct access to market and financial resources, thereby compensating for the lack of community information. In villages with fewer participants in skill training, the promoting effect of digital finance usage on consumption expenditure was the strongest. However, as the number of training participants increased, the influence of digital finance usage gradually diminished, though it still maintained a significant positive impact on consumption. In villages where logistics delivery was available, the promoting effect of digital finance usage on household consumption was greater. These villages typically have well-developed road infrastructure, allowing for smooth transportation and warehousing logistics, enabling farmers to engage in broader online shopping and e-commerce activities through digital finance. Conversely, in villages without medical clinics, the impact of digital finance usage on household consumption expenditure was relatively small. This may be due to insufficient health security suppressing some consumption demands, as farmers prioritize preventive savings for health reasons, which restrains current consumption. However, as the number of medical clinics increased, the positive influence of digital finance usage on consumption expenditure significantly enhanced. Economies 2024,12, 325 17 of 20 5. Research Conclusions and Implications Expanding resident consumption demand is a crucial requirement to meet the growing aspirations for a better life and to achieve domestic circulation. Effectively unleashing resident consumption potential and promoting consumption upgrades are key strategic bases for accelerating the construction of a new development pattern. This study, based on micro-survey data from households and villages collected by the research team in 2022, investigated the impact mechanisms and effects of digital finance usage on the household consumption scale and structural upgrades. The results indicated that (1) digital finance usage significantly promoted the expansion of the household consumption scale and the upgrading of the consumption structure, particularly in fostering development of enjoyment-based consumption. Robustness checks—using cumulative scoring for digital finance usage, excluding durable goods consumption indicators, eliminating samples of households with self-reported high financial literacy, and employing instrumental variable methods to address endogeneity—confirmed that the results remained robust. (2) Mechanism testing revealed that alleviating credit constraints, enhancing risk prevention capabilities, and increasing financial investment returns are the primary pathways through which digital finance usage drives the expansion and quality improvement of household consumption. (3) The analysis of the heterogeneous consumption effects of digital finance usage showed that it was more effective in unlocking consumption potential among middleand high-income households, and its promoting effect was more pronounced among those with lower education levels. Additionally, heterogeneity tests at the village level indicated that community building and skills training significantly amplified the consumption-promoting effects of digital finance usage, while improvements in logistics delivery and basic medical clinic services also enhanced the capacity and efficiency of consumption effects. Based on the above research, this paper proposes the following policy recommendations: First, strengthen digital financial education and promotion. Targeted and tiered education programs should be implemented for different groups. For farmers with lower levels of education, accessible and straightforward training on digital financial literacy should be provided, focusing on the use of basic financial tools, such as mobile payments, online loans, and digital savings. Additionally, community information group chats should be leveraged at the village level to share case studies on the use of digital financial tools and best practices for making consumption decisions. This approach aims to enhance trust and willingness to adopt digital finance solutions. Second, optimize the rural digital financial ecosystem. Efforts should be made to develop a diverse range of digital financial products. For middleand high-income groups, more consumption-oriented credit products, such as specialized loans for education, healthcare, and tourism, should be designed. At the same time, low-income groups should be provided with low-interest, low-threshold microcredit products. Additionally, the convenience of digital financial services should be enhanced by promoting the adoption of smart terminal devices and related software applications, enabling farmers to access digital financial services with ease. Simplifying the operational processes of digital financial tools is also essential to reduce technical barriers. Third, strengthen village infrastructure development. Efforts should be made to promote community building and skills training by encouraging villages to organize regular training courses on topics such as e-commerce operations and financial management. This will enhance residents’ abilities to use digital financial tools, thereby amplifying the role of digital finance in driving consumption. Additionally, the logistics distribution network should be improved by establishing efficient logistics channels between rural and urban areas to reduce transportation costs for consumer goods and promote e-commerce consumption. Policy support should also be provided to e-commerce logistics enterprises to address the “last-mile”-delivery challenge in rural areas. Furthermore, medical and health security should be enhanced by improving the infrastructure of rural medical clinics. This will provide farmers with reliable healthcare services, reduce their precautionary savings needs, and unlock greater consumption potential. Economies 2024,12, 325 18 of 20 Author Contributions: Conceptualization, S.X. and X.L.; methodology, L.Z.; software, S.X.; validation, S.X. and Y.X.; formal analysis, L.Z.; investigation, S.X.; resources, X.L.; data curation, S.X. and Y.X.; writing—original draft preparation, S.X.; writing—review and editing, S.X., X.L. and L.Z.; visualization, Y.X.; supervision, S.X.; project administration, X.L.; funding acquisition, L.Z. All authors have read and agreed to the published version of the manuscript. 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