methodology of literary criticism

Module 10: Working with Literature

Approaches to literary criticism, learning objectives.

Describe key methodological approaches in the field of literary criticism

One useful way to think about the different approaches or schools of literary criticism is to regard them as different methodologies. An earlier chapter in this textbook (Section 1.3: Fields of Inquiry) talked about the different methodologies employed by different academic disciplines. We defined a methodology there as a “a system of methods that an academic discipline uses to carry out its research and pursue the answers to its questions, combined with an overarching philosophical attitude and interpretive framework for applying those methods.” That’s a good guide to understanding the nature of the different literary critical theories/methodologies. There’s a whole host of different interpretive methodologies for approaching works of literature. You’ll learn more about these in the next section. Collectively, these individual methodologies or theories add up, more or less, to the larger realm of literary theory as a whole.

Schools of Literary Criticism

To put meat on these bones, here are brief descriptions of some of the most prominent schools of literary criticism. (Bear in mind that this is hardly a comprehensive list!) When you research the available scholarly writings on a given work of literature, you may come across essays and articles that use one or more of these approaches. We’ve grouped them into four categories—author-focused, text-focused, reader-focused, and context-focused—each with its own central approach and central question about literary works and effective ways to understand them.

Author-Focused: How can we understand literary works by understanding their authors?

Biographical criticism focuses on the author’s life. It tries to gain a better understanding of the literary work by understanding the person who wrote it. Typical questions involved in this approach include the following:

• What aspects of the author’s life are relevant to understanding the work?
• How are the author’s personal beliefs encoded into the work?
• Does the work reflect the writer’s personal experiences and concerns? How or how not?

Psychological criticism applies psychological theories, especially Freudian psychoanalysis and Jungian archetypal depth psychology, to works of literature to explore the psychological issues embedded in them. It may analyze a story’s characters or plot, a poet’s use of language and imagery, the author’s motivations for writing, or any other aspect of a literary work from a psychological perspective. It can be classified as an author-focused approach because its emphasis is on reading the work as an expression of the author’s unconscious processes, such that one can analyze and interpret the work in the same way a psychoanalyst would do with a patient’s dream. Typical questions involved in this approach include the following:

• What psychological forces and factors are involved in the words, behaviors, thoughts, and motivations of the characters in a story?
• Do dreams or psychological disorders play a part in the work?
• How did the author’s life experiences affect his or her intellectual and emotional formation? How is this psychological impact evident in the text and/or the author’s act of writing it?
• What unintended meanings might the author have embedded or encoded in the work?

Text-Focused: How can we understand literary works in terms of themselves?

Formalism , along with one of its more conspicuous modern iterations, New Criticism , focuses on a literary text itself, aside from questions about its author or the historical and cultural contexts of its creation. Formalism takes a story, poem, or play “on its own terms,” so to speak, viewing it as a self-contained unit of meaning. The formalist critic therefore tries to understand that meaning by paying attention to the specific form of the text. New Criticism was a particular kind of Formalism that arose in the mid-twentieth century and enjoyed great influence for a time. Typical questions involved in this approach include the following:

• How does the structure of the work reveal its meaning?
• How do the form and content of the work illuminate each other? What recurring patterns are there in the form, and what is their effect?
• How does use of imagery, language, and various literary devices establish the work’s meaning?
• How do the characters (if any) evolve over the course of the narrative, and how does this interact with the other literary elements?

Reader-Focused: How can we understand literary works by understanding the subjective experience of reading them?

Reader-response criticism emphasizes the reader as much as the text. It seeks to understand how a given reader comes together with a given literary work to produce a unique reading. This school of criticism rests on the assumption that literary works don’t contain or embody a stable, fixed meaning but can have many meanings—in fact, as many meanings as there are readers, since each reader will engage with the text differently. In the words of literature scholar Lois Tyson, “reader-response theorists share two beliefs: (1) that the role of the reader cannot be omitted from our understanding of literature and (2) that readers do not passively consume the meaning presented to them by an objective literary text; rather they actively make the meaning they find in literature.” Typical questions involved in this approach include the following:

• Who is the reader? Also, who is the implied reader (the one “posited” by the text)?
• What kinds of memories, knowledge, and thoughts does the text evoke from the reader?
• How exactly does the interaction between the reader and the text create meaning on both the text side and the reader side? How does this meaning change from person to person, or if the same person rereads it?

Context-Focused: How can we understand literary works by understanding the contextual circumstances—historical, societal, cultural, political, economic—out of which they emerged?

Historical criticism focuses on the historical and social circumstances that surrounded the writing of a text. It may examine biographical facts about the author’s life (which can therefore connect this approach with biographical criticism) as well as the influence of social, political, national, and international events. It may also consider the influence of other literary works. New Historicism, a particular type of historical criticism, focuses not so much on the role of historical facts and events as on the ways these things are remembered and interpreted, and the way this interpreted historical memory contributes to the interpretation of literature. Typical questions involved in historical criticism include the following:

• How (and how accurately) does the work reflect the historical period in which it was written?
• What specific historical events influenced the author?
• How important is the work’s historical context to understanding it?
• How does the work represent an interpretation of its time and culture? (New Historicism)

Feminist criticism focuses on prevailing societal beliefs about women in an attempt to expose the oppression of women on various levels by patriarchal systems both contemporary and historical. It also explores the marginalization of women in the realm of literature itself. Typical questions involved in this approach include the following:

• How does the work portray the lives of women?
• How are female characters portrayed? How are the relationships between men and women portrayed? Does this reinforce sexual and gender stereotypes or challenge them?
• How does the specific language of a literary work reflect gender or sexual stereotypes?

Post-colonial criticism focuses on the impact of European colonial powers on literature. It seeks to understand how European hegemonic political, economic, religious, and other types of power have shaped the portrayals of the relationship and status differentials between Europeans and colonized peoples in literature written both by the colonizers and the colonized. Typical questions involved in this approach include the following:

• How does the text’s worldview, as evinced in plot, language, characterization, and so on, grow out of assumptions based on colonial oppression?
• Which groups of people are portrayed as strangers, outsiders, foreign, exotic, “others”? How are they treated in the narrative?
• How does the work portray the psychology and interiority of both colonizers and colonized?
• How does the text affirm (either actively or by silence) or challenge colonialist ideology?

Critical race theory focuses on systemic racism and interrogates the dynamics of race and race relationships. In origin, it is a specifically American school of critical theory that sees White racism as an everyday fact of life in America, visible throughout all aspects of culture and society. As such, it encompasses all aspects of life, including literature. Its purpose is to expose and overturn the factors that enable systemic racism to exist. As a literary critical approach, its typical questions include the following:

• What is the significance of race, either explicit or implicit, in the literary work being examined?
• Does the work include or exclude the voices and experiences of racism’s victims?
• How does the work either affirm/reinforce (whether actively or by silence) or challenge/subvert systemic racism?

The following video presents a helpful introduction to the different schools of literary theory and criticism as methodologies:

Useful Metaphors: Literary Critical Methods as Toolboxes and Lenses

Two useful metaphors for understanding what literary critical theories do and how they’re intended to work are the metaphor of the toolbox and the metaphor of the lens .

The toolbox is the older metaphor. It was more popular before the turn of the twenty-first century, and it says that each critical/theoretical approach provides a set of tools, in the form of specialized concepts and vocabulary, for thinking and talking meaningfully about literature. As this metaphor would have it, once you’ve learned the right concepts and terminology, you’re better equipped with the tools to think and talk about literature in a rich and deep way.

Beginning roughly around the turn of the century, the lens began to supplant the toolbox as the preferred metaphor. Tyson explains it well: “Think of each theory as a new pair of eyeglasses through which certain elements of our world are brought into focus while others . . . fade into the background.” In other words, the lens metaphor characterizes each critical/theoretical approach as a different way of seeing the text, with the different lenses rendering different aspects of the text more prominent or less prominent, more visible or less visible, resulting in the possibility of substantially and even fundamentally different overall readings of the same text depending on which lens is used.

For example, consider the case of Homer’s Iliad as it might appear through several of the different lenses described above.

• Biographical criticism would highlight the influence of Homer himself—his biographical facts and major life experiences—on the text.
• Psychological criticism would highlight the inner psychological lives of the characters and the psychological meanings and significance of the Iliad’s language, settings, gods, heroes, themes, and so on, reading Homer’s epic poem in psychoanalytic terms as a kind of symbolic dreamworld.
• Reader-response criticism would consider the relationship between the individual reader and the text. Since the Iliad is more than two thousand years old, one possible reader-response approach (but only one among any) might be to consider how the modern reader’s experience and understanding of this work harmonizes or clashes with the implied/intended reader of a poem that was written down in vastly different cultural circumstances some 2,800 years ago, and that was composed even earlier than that.
• Historical criticism would try to understand the Iliad by understanding the historical, cultural, and literary contexts out of which it emerged in ancient Greece, and of which it is at least partly a reflection.
• Feminist criticism would highlight the roles and portrayals of women in a work largely dominated by men—such as Brisies, the Trojan priestess of Apollo, who becomes a contested “possession” in a conflict between Achilles and Agamemnon—and perhaps seek to recover these feminine perspectives from beneath their subjugation under the overriding masculine one.

It’s also important to recognize that not all literary works are equally amenable to being examined through all critical/theoretical lenses. When it comes to the Iliad, for example, post-colonial critics have found relatively little to “work with” and respond to. However, it’s a different story with Homer’s Odyssey, where the post-colonial lens has produced readings of the text that highlight Odysseus’ role as a colonizer, even as the same lens has also produced readings that highlight  Odysseus’ role as a wretched refugee. (Greenwood)

Tyson, Lois. Critical Theory Today: A User-Friendly Guide. 2nd ed., Routledge, 2006, p. 170.

Greenwood, Emily. Postcolonial Perceptions of Homeric Epic. The Cambridge Guide to Homer, edited by Corinne Ondine Pache, Cambridge: Cambridge University Press, 2020, pp. 532-535.

• Methodology: An Introduction to Literary Theory. Authored by : The Nature of Writing. Provided by : The Nature of Writing. Located at : https://youtu.be/hXLm3zZYhc0 . License : All Rights Reserved
• Approaches to Literary Criticism. Provided by : Lumen Learning. License : CC BY: Attribution

Table of Contents

Ai, ethics & human agency, collaboration, information literacy, writing process, literary criticism.

• © 2023 by Angela Eward-Mangione - Hillsborough Community College
• Some of the people in the group say they do not like the film because it portrays Bella as a weak female who becomes obsessed with Edward Cullen whom she cannot marry without leaving her loving father and losing her precious mortality.
• Other people like those aspects of the film, however, arguing that the film makes them disagree with its representation of some women as meek characters.

What is Literary Criticism?

Literary Criticism is

• a research method , a type of textual research , that literary critics employ to interpret texts and debate interpretations
• a genre of argument about a specific text or a set of texts .

Key Terms: Archive, Canon ; Dialectic ; Hermeneutics ; Semiotics ; Text & Intertextuality ; Tone ; rhetoric , intersubjectivity, modernism, postmodernism.

*Alternative Article Title(s): Critical Theory

General Strategies for Engaging in Literary Criticism

Engage in rhetorical analysis.

The methods for engaging in rhetorical criticism and presenting interpretations are bounded by the values and customs of particular disciplinary communities–i.e., the conventions of particular critical schools (e.g., Critical Disability Studies or Feminist Criticism ).

Distinguish between summarizing the literary work and presenting your argument. Many students fall into the trap of spending too much time summarizing the literature being analyzed as opposed to critiquing it. As a result, it would be wise to check with your teacher regarding how much plot summary is expected. As you approach this project, remember to keep your eye on the ball: What, exactly (in one sentence) is the gist of your interpretation?

Development

One of the most strategic things you can do if you’ve assigned to write some criticism is to read other critics who are well regarded by the disciplinary community you choose to address.

How do other critics evaluate an author’s work? What literary theories do literary critics use to interpret texts or particular moments in history? Reading sample analysis papers can help you find and adopt an appropriate voice and persona. By reading samples, you can learn how others have prioritized particular criteria.

Cite Other Critics’ Interpretations of the Work

Criticism written by advanced English majors, graduate students, and literary critics may be more about what other critics have said than about the actual text. Indeed, many critics spend more time reading criticism and arguing about critical approaches than actually reading original works. However, unless you are enrolled in a literary theory course, your instructor probably wants you to focus more on interpreting the work than discussing other critical interpretations. This does not mean, however, that you should write about a literary work “blindly.” Instead, you are wise to find out what other students and critics have said about the work.

Below is a sample passage that illustrates how other critics’ works can inspire an author and guide him or her in constructing a counter argument, support an author’s interpretation, and provide helpful biographical information.

In her critical biography of Shirley Jackson, Lenemaja Friedman notes that when Shirley Jackson’s story “The Lottery” was published in the June 28, 1948 issue of the New Yorker it received a response that “no New Yorker story had ever received”: hundreds of letters poured in that were characterized by “bewilderment, speculation, and old-fashioned abuse.”1 It is not hard to account for this response: Jackson’s story portrays an “average” New England village with “average” citizens engaged in a deadly rite, the annual selection of a sacrificial victim by means of a public lottery, and does so quite deviously: not until well along in the story do we suspect that the “winner” will be stoned to death by the rest of the villagers.

[ Scholarship as a Conversation ]

Organization

The format for literary critiques is fairly standard:

• State your claim(s).
• Forecast your organization.
• Marshal evidence for your claim.
• Reiterate argument and elaborate on its significance.

In English classes, you may be able to assume that your readers are familiar with the work you are critiquing. Perhaps, for example, the entire class is responding to one particular work after some class discussions about it. However, if your instructor asks you to address a broader audience, you may need to provide bibliographical information for the work. In other words, you may need to cite the title, publisher, date, and pages of the work (see Citing Sources ).

Literary critiques are arguments. As such, your instructors expect you to state a claim in your introduction and then provide quotes and paraphrased statements from the text to serve as evidence for your claim. Ideally, your critique will be insightful and interesting. You’ll want to come up with an interpretation that isn’t immediately obvious. Below are some examples of “thesis statements” or “claims” from literary critiques:

• In “The Yellow Wallpaper,” by Charlotte Perkins Gilman, the protagonist is oppressed and represents the effect of the oppression of women in society. This effect is created by the use of complex symbols such as the house, the window, and the wall-paper which facilitate her oppression as well as her self expression. [“‘The Yellow Wall-Paper’: A Twist on Conventional Symbols” by Liselle Sant]
• “The Yellow Wallpaper” by Charlotte Gilman is a sad story of the repression that women face in the days of the late 1800’s as well as being representative of the turmoil that women face today. [Critique of “The Yellow Wallpaper” by Brandi Mahon]
• “The Yellow Wallpaper,” written by Charlotte Perkins Gilman, is a story of a woman, her psychological difficulties and her husband’s so called therapeutic treatment of her aliments during the late 1800s. . . Gilman does well throughout the story to show with descriptive phrases just how easily and effectively the man “seemingly” wields his “maleness” to control the woman. But, with further interpretation and insight I believe Gilman succeeds in nothing more than showing the weakness of women, of the day, as active persons in their own as well as society’s decision making processes instead of the strength of men as women dominating machines. “The View from the Inside” by Timothy J. Decker
• In Adventures of Huckleberry Finn, Mark Twain creates a strong opposition between the freedom of Huck and Jim’s life on the raft drifting down the Mississippi River, which represents “nature,” and the confining and restrictive life on the shore, which represents “society.” [ “‘All I wanted was a change’: Positive Images of Nature and Society in Chapter 19 of Adventures of Huckleberry Finn” from Professor Matthew Hurt’s “Sample Essays for English 103: Introduction to Fiction”]
• In Gabriel Garcia Marquez’s short story, “A Very Old Man with Enormous Wings,” an unexpected visitor comes down from the sky, and seems to test the faith of a community. The villagers have a difficult time figuring out just how the very old man with enormous wings fits into their lives. Because this character does not agree with their conception of what an angel should look like, they try to determine if the aged man could actually be an angel. In trying to prove the origin of their visitor, the villagers lose faith in the possibility of him being an angel because he does not adhere to their ordered world. Marquez keeps the identity of the very old man with enormous wings ambiguous to critique the villagers and, more generally, organized religion for having a lack of faith to believe in miracles that do not comply with their master narrative. [“Prove It: A Critique of the Villagers’ Faith in ‘A Very Old Man with Enormous Wings'” from Sample Essays for English 103: Introduction to Fiction, Professor Matthew Hurt]

Literary criticism is a fairly specialized genre . Instead of writing to a general lay audience, you are writing to members of a literary community who have read a work and who developed opinions about the work–as well as a vocabulary of interpretation.

Across Schools of Criticism, critics share a common vocabulary of critique. Below are some common words used by literary critics.

• Protagonist: The protagonist is the major character of the story; typically the character must overcome significant challenges.
• Antagonist: The protagonist’s chief nemesis; in other words, the character whom the protagonist must overcome.
• Symbols: Metaphoric language; see A Catalogue of Symbols in The Awakening by Kate Chopin
• Viewpoint: Stories are told either in the first person or third person point of view. The first person is limited to a single character, although dialog can let you guess at other characters’ intentions. The third person allows readers inside the character’s mind so you know what the character feels and thinks.Viewpoint can be “limited,” where the character knows less than the reader, or “omniscient,” where the reader can hear the thoughts and feelings of all characters. Occasionally writers will use multiple character viewpoint, which takes you from one character’s perspective to another.
• Plot: Plots are a series of scenes, typically moving from a conflict situation to a resolution. To surprise readers, authors will foreshadow “false plants,” which lead readers to anticipate other resolutions. The term “denouement” refers to the unraveling of the plot in the conclusion.

Cite from the Work

Literary criticism involves close reading of a literary work, regardless of whether you are arguing about a particular interpretation, comparing stories or poems, or using a theory to interpret literature. The purpose of the document is not to inform the readers, but to argue a particular interpretation. You only need to cite parts of the work that support or relate to your argument and follow the citation format required by your instructor

What are Schools of Literary Criticism?

Literary theory and criticism have existed from classical through contemporary times. Over time, schools of criticism have evolved as critics (aka communities of practitioners) have introduced new ideas about texts and intertextuality , rhetoric , intersubjectivity, modernism, postmodernism.

Schools of Literary Criticism include

Critical Disability Studies

Feminist criticism, lgbtq + criticism, marxist criticism, new historicist criticism, post-colonial criticism, post-structuralist, deconstructive criticism, psychological criticism, reader-response criticism, russian formalism and new criticism, structuralist criticism.

Most schools of literary criticism draw extensively on the work of other theorists and critics, while others concentrate on the reader’s thoughts and feelings. Additionally, some theorists analyze a work from an historical perspective, while others focus solely on a close reading of a text.

The first step in formulating a critical argument is to assume a rhetorical stance that engages a type, school, or approach of literary criticism. The critical approach you employ to engage in textual analysis will shape the content of your interpretation.

[ Rhetorical Stance | Rhetorical Reasoning ]

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Approaches to Literary Criticism

One useful way to think about the different approaches or schools of literary criticism is to regard them as different methodologies. We defined a methodology as a “a system of methods that an academic discipline uses to carry out its research and pursue the answers to its questions, combined with an overarching philosophical attitude and interpretive framework for applying those methods.” That’s a good guide to understanding the nature of the different literary critical theories/methodologies. There’s a whole host of different interpretive methodologies for approaching works of literature. You’ll learn more about these in the next section. Collectively, these individual methodologies or theories add up, more or less, to the larger realm of literary theory as a whole.

Schools of Literary Criticism

To put meat on these bones, here are brief descriptions of some of the most prominent schools of literary criticism. (Bear in mind that this is hardly a comprehensive list!) When you research the available scholarly writings on a given work of literature, you may come across essays and articles that use one or more of these approaches. We’ve grouped them into four categories—author-focused, text-focused, reader-focused and context-focused—each with its own central approach and central question about literary works and effective ways to understand them.

Author-Focused: How can we understand literary works by understanding their authors?

Biographical  criticism focuses on the author’s life. It tries to gain a better understanding of the literary work by understanding the person who wrote it. Typical questions involved in this approach include the following:

• What aspects of the author’s life are relevant to understanding the work?
• How are the author’s personal beliefs encoded into the work?
• Does the work reflect the writer’s personal experiences and concerns? How or how not?

Reader-Focused: How can we understand literary works by understanding the subjective experience of reading them?

Reader-response  criticism emphasizes the reader as much as the text. It seeks to understand how a given reader comes together with a given literary work to produce a unique reading. This school of criticism rests on the assumption that literary works don’t contain or embody a stable, fixed meaning but can have many meanings—in fact, as many meanings as there are readers, since each reader will engage with the text differently. In the words of literature scholar Tyson (2006), “reader-response theorists share two beliefs: (1) that the role of the reader cannot be omitted from our understanding of literature and (2) that readers do not passively consume the meaning presented to them by an objective literary text; rather they actively make the meaning they find in literature” (p. 170). Typical questions involved in this approach include the following:

• Who is the reader? Also, who is the implied reader (the one “posited” by the text)?
• What kinds of memories, knowledge, and thoughts does the text evoke from the reader?
• How exactly does the interaction between the reader and the text create meaning on both the text side and the reader side? How does this meaning change from person to person, or if the same person rereads it?

Context-Focused: How can we understand literary works by understanding the contextual circumstances—historical, societal, cultural, political, economic—out of which they emerged?

Historical  criticism focuses on the historical and social circumstances that surrounded the writing of a text. It may examine biographical facts about the author’s life (which can therefore connect this approach with biographical criticism) as well as the influence of social, political, national, and international events. It may also consider the influence of other literary works. New Historicism, a particular type of historical criticism, focuses not so much on the role of historical facts and events as on the ways these things are remembered and interpreted, and the way this interpreted historical memory contributes to the interpretation of literature. Typical questions involved in historical criticism include the following:

• How (and how accurately) does the work reflect the historical period in which it was written?
• What specific historical events influenced the author?
• How important is the work’s historical context to understanding it?
• How does the work represent an interpretation of its time and culture? (New Historicism)

Useful Metaphors: Literary Critical Methods as Toolboxes and Lenses

Two useful metaphors for understanding what literary critical theories do and how they’re intended to work are the metaphor of the  toolbox  and the metaphor of the  lens .

The  toolbox  is the older metaphor. It was more popular before the turn of the twenty-first century, and it says that each critical/theoretical approach provides a set of tools, in the form of specialized concepts and vocabulary, for thinking and talking meaningfully about literature. As this metaphor would have it, once you’ve learned the right concepts and terminology, you’re better equipped with the tools to think and talk about literature in a rich and deep way.

Beginning roughly around the turn of the century, the  lens began to supplant the toolbox as the preferred metaphor. Tyson (2006) explains it well: “Think of each theory as a new pair of eyeglasses through which certain elements of our world are brought into focus while others . . . fade into the background” (p. 170). In other words, the lens metaphor characterizes each critical/theoretical approach as a different way of seeing the text, with the different lenses rendering different aspects of the text more prominent or less prominent, more visible or less visible, resulting in the possibility of substantially and even fundamentally different overall readings of the same text depending on which lens is used.

For example, consider the case of Homer’s  Iliad  as it might appear through several of the different lenses described above.

• Biographical criticism would highlight the influence of Homer himself—his biographical facts and major life experiences—on the text.
• Reader-response criticism would consider the relationship between the individual reader and the text. Since the Iliad is more than two thousand years old, one possible reader-response approach (but only one among any) might be to consider how the modern reader’s experience and understanding of this work harmonizes or clashes with the implied/intended reader of a poem that was written down in vastly different cultural circumstances some 2,800 years ago, and that was composed even earlier than that.
• Historical criticism would try to understand the Iliad by understanding the historical, cultural, and literary contexts out of which it emerged in ancient Greece, and of which it is at least partly a reflection.

It’s also important to recognize that not all literary works are equally amenable to being examined through all critical/theoretical lenses. When it comes to the Iliad, for example, post-colonial critics have found relatively little to “work with” and respond to. However, it’s a different story with Homer’s Odyssey, where the post-colonial lens has produced readings of the text that highlight Odysseus’ role as a colonizer, even as the same lens has also produced readings that highlight  Odysseus’ role as a wretched refugee (Greenwood, 2020, pp. 532-535).

Watch it: An Introduction to Literary Theory

Watch Methodology: An introduction to literary theory (17 minutes) on YouTube

Video source: The Nature of Writing. (2017, May 25). Methodology: An introduction to literary theory [Video]. YouTube. https://youtu.be/hXLm3zZYhc0

Attribution & References

Except where otherwise noted, this section is adapted from  “Approaches to Literary Criticism” In English Composition II   by Lumen Learning, licensed under CC BY 4.0 . / Adaptations include removal of feminist and Marxism critical theory sections.

Tyson, L. (2006). Critical theory today: A user-friendly guide  (2nd ed.). Routledge. https://doi.org/10.4324/9780203479698

Greenwood, E. (2020). Postcolonial perceptions of Homeric epic. In C. O. Pache (Ed.), T he Cambridge Guide to Homer (pp. 532-535). Cambridge University Press.  https://doi.org/10.1017/9781139225649

English for Degree Entrance (EDE) Copyright © by Carrie Molinski and Sue Slessor is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Criticism and Truth

On method in literary studies.

Jonathan Kramnick

136 pages | 5 1/2 x 8 1/2 | © 2023

Thinking Literature

Literature and Literary Criticism: General Criticism and Critical Theory

• Table of contents
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“Here is the study of literary critical method we needed—a slim volume capable of displacing shelves of manifestos on the future of the discipline. What do literary critics know, and how do they know it? Criticism and Truth grounds our distinctive epistemology in everyday practices—how we quote and paraphrase our objects of study, share the medium of language with them, and build plot summaries. It captures the brilliance of literary critics everywhere, yet only Jonathan Kramnick could have written this gemlike book.”

Rachel Sagner Buurma, coauthor of "The Teaching Archive"

“In a highly skilled performance of his own, Kramnick discloses the artistry and creativity embedded in routine acts of close reading. Such methodological reflection is long overdue and marks an important step toward making literary critics' tacit values and abilities intelligible to themselves.”

Elaine Auyoung, University of Minnesota

“ Criticism and Truth doesn’t just declare a truce in the method wars: it shows that our squabbling has obscured the deeper truth of a shared disciplinary craft. Lavishing his own considerable analytic gifts on the unfairly unloved genre of contemporary criticism, Kramnick beautifully describes—for what feels like the first time—what literary scholars do, and why their everyday virtuosity matters.”

David Kurnick, Rutgers University

“Animated by ardency and urgency, written in pellucid prose, argued with finesse and flair, Criticism and Truth is both beautiful and true. It persuades even as it galvanizes. Kramnick’s taut, elegant book should be read widely, its moral passion a beacon for all of us who care about the fate of literature and the humanities.”

Priscilla Gilman, author of "The Anti-Romantic Child" and "The Critic’s Daughter"

"The authorʼs meticulous analysis offers an eye-opening take on literary criticism as a creative process . . . English scholars will want to take a look."

Publishers Weekly

"[Kramnick] expresses alarm at the prospects of academic literary criticism’s continued existence as a recognized field of study within the contemporary university. . . . Articulating the place of literature in 'collective human flourishing'—or specifying what distinguishes literature from other kinds of written language, for that matter— falls outside Kramnick’s project at hand. Bracketing such questions. . . gives the book its quality of extreme concentration and lucidity in the pursuit of the common element in thriving academic literary criticism: the element that must be preserved, lest the whole discipline disappear. . . . [ Criticism and Truth ] merits attention beyond its field."  

Scott McLemee | Inside Higher Education

Table of Contents

Introduction: Craft Knowledge

Chapter 1: Method Talk

Chapter 2: Close Reading

Chapter 3: Skilled Practice

Chapter 4: Interpretation and Creativity

Chapter 5: Verification

Coda: Public Criticism for a Public Humanities

Acknowledgments

A Defense of Judgment

Michael W. Clune

The Limits of Critique

Rita Felski

Practicing New Historicism

Catherine Gallagher

Paper Minds

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Chapter Four: Theory, Methodologies, Methods, and Evidence

Research Methods

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This page discusses the following topics:

Research Goals

Research method types.

Before discussing research   methods , we need to distinguish them from  methodologies  and  research skills . Methodologies, linked to literary theories, are tools and lines of investigation: sets of practices and propositions about texts and the world. Researchers using Marxist literary criticism will adopt methodologies that look to material forces like labor, ownership, and technology to understand literature and its relationship to the world. They will also seek to understand authors not as inspired geniuses but as people whose lives and work are shaped by social forces.

Example: Critical Race Theory Methodologies

Critical Race Theory may use a variety of methodologies, including

• Interest convergence: investigating whether marginalized groups only achieve progress when dominant groups benefit as well
• Intersectional theory: investigating how multiple factors of advantage and disadvantage around race, gender, ethnicity, religion, etc. operate together in complex ways
• Radical critique of the law: investigating how the law has historically been used to marginalize particular groups, such as black people, while recognizing that legal efforts are important to achieve emancipation and civil rights
• Social constructivism: investigating how race is socially constructed (rather than biologically grounded)
• Standpoint epistemology: investigating how knowledge relates to social position
• Structural determinism: investigating how structures of thought and of organizations determine social outcomes

To identify appropriate methodologies, you will need to research your chosen theory and gather what methodologies are associated with it. For the most part, we can’t assume that there are “one size fits all” methodologies.

Research skills are about how you handle materials such as library search engines, citation management programs, special collections materials, and so on.

Research methods  are about where and how you get answers to your research questions. Are you conducting interviews? Visiting archives? Doing close readings? Reviewing scholarship? You will need to choose which methods are most appropriate to use in your research and you need to gain some knowledge about how to use these methods. In other words, you need to do some research into research methods!

Your choice of research method depends on the kind of questions you are asking. For example, if you want to understand how an author progressed through several drafts to arrive at a final manuscript, you may need to do archival research. If you want to understand why a particular literary work became a bestseller, you may need to do audience research. If you want to know why a contemporary author wrote a particular work, you may need to do interviews. Usually literary research involves a combination of methods such as  archival research ,  discourse analysis , and  qualitative research  methods.

Literary research methods tend to differ from research methods in the hard sciences (such as physics and chemistry). Science research must present results that are reproducible, while literary research rarely does (though it must still present evidence for its claims). Literary research often deals with questions of meaning, social conventions, representations of lived experience, and aesthetic effects; these are questions that reward dialogue and different perspectives rather than one great experiment that settles the issue. In literary research, we might get many valuable answers even though they are quite different from one another. Also in literary research, we usually have some room to speculate about answers, but our claims have to be plausible (believable) and our argument comprehensive (meaning we don’t overlook evidence that would alter our argument significantly if it were known).

A literary researcher might select the following:

Theory: Critical Race Theory

Methodology: Social Constructivism

Method: Scholarly

Skills: Search engines, citation management

Wendy Belcher, in  Writing Your Journal Article in 12 Weeks , identifies two main approaches to understanding literary works: looking at a text by itself (associated with New Criticism ) and looking at texts as they connect to society (associated with Cultural Studies ). The goal of New Criticism is to bring the reader further into the text. The goal of Cultural Studies is to bring the reader into the network of discourses that surround and pass through the text. Other approaches, such as Ecocriticism, relate literary texts to the Sciences (as well as to the Humanities).

The New Critics, starting in the 1940s,  focused on meaning within the text itself, using a method they called “ close reading .” The text itself becomes e vidence for a particular reading. Using this approach, you should summarize the literary work briefly and q uote particularly meaningful passages, being sure to introduce quotes and then interpret them (never let them stand alone). Make connections within the work; a sk  “why” and “how” the various parts of the text relate to each other.

Cultural Studies critics see all texts  as connected to society; the critic  therefore has to connect a text to at least one political or social issue. How and why does  the text reproduce particular knowledge systems (known as discourses) and how do these knowledge systems relate to issues of power within the society? Who speaks and when? Answering these questions helps your reader understand the text in context. Cultural contexts can include the treatment of gender (Feminist, Queer), class (Marxist), nationality, race, religion, or any other area of human society.

Other approaches, such as psychoanalytic literary criticism , look at literary texts to better understand human psychology. A psychoanalytic reading can focus on a character, the author, the reader, or on society in general. Ecocriticism  look at human understandings of nature in literary texts.

We select our research methods based on the kinds of things we want to know. For example, we may be studying the relationship between literature and society, between author and text, or the status of a work in the literary canon. We may want to know about a work’s form, genre, or thematics. We may want to know about the audience’s reading and reception, or about methods for teaching literature in schools.

Below are a few research methods and their descriptions. You may need to consult with your instructor about which ones are most appropriate for your project. The first list covers methods most students use in their work. The second list covers methods more commonly used by advanced researchers. Even if you will not be using methods from this second list in your research project, you may read about these research methods in the scholarship you find.

Most commonly used undergraduate research methods:

• Scholarship Methods:  Studies the body of scholarship written about a particular author, literary work, historical period, literary movement, genre, theme, theory, or method.
• Textual Analysis Methods:  Used for close readings of literary texts, these methods also rely on literary theory and background information to support the reading.
• Biographical Methods:  Used to study the life of the author to better understand their work and times, these methods involve reading biographies and autobiographies about the author, and may also include research into private papers, correspondence, and interviews.
• Discourse Analysis Methods:  Studies language patterns to reveal ideology and social relations of power. This research involves the study of institutions, social groups, and social movements to understand how people in various settings use language to represent the world to themselves and others. Literary works may present complex mixtures of discourses which the characters (and readers) have to navigate.
• Creative Writing Methods:  A literary re-working of another literary text, creative writing research is used to better understand a literary work by investigating its language, formal structures, composition methods, themes, and so on. For instance, a creative research project may retell a story from a minor character’s perspective to reveal an alternative reading of events. To qualify as research, a creative research project is usually combined with a piece of theoretical writing that explains and justifies the work.

Methods used more often by advanced researchers:

• Archival Methods: Usually involves trips to special collections where original papers are kept. In these archives are many unpublished materials such as diaries, letters, photographs, ledgers, and so on. These materials can offer us invaluable insight into the life of an author, the development of a literary work, or the society in which the author lived. There are at least three major archives of James Baldwin’s papers: The Smithsonian , Yale , and The New York Public Library . Descriptions of such materials are often available online, but the materials themselves are typically stored in boxes at the archive.
• Computational Methods:  Used for statistical analysis of texts such as studies of the popularity and meaning of particular words in literature over time.
• Ethnographic Methods:  Studies groups of people and their interactions with literary works, for instance in educational institutions, in reading groups (such as book clubs), and in fan networks. This approach may involve interviews and visits to places (including online communities) where people interact with literary works. Note: before you begin such work, you must have  Institutional Review Board (IRB)  approval “to protect the rights and welfare of human participants involved in research.”
• Visual Methods:  Studies the visual qualities of literary works. Some literary works, such as illuminated manuscripts, children’s literature, and graphic novels, present a complex interplay of text and image. Even works without illustrations can be studied for their use of typography, layout, and other visual features.

Regardless of the method(s) you choose, you will need to learn how to apply them to your work and how to carry them out successfully. For example, you should know that many archives do not allow you to bring pens (you can use pencils) and you may not be allowed to bring bags into the archives. You will need to keep a record of which documents you consult and their location (box number, etc.) in the archives. If you are unsure how to use a particular method, please consult a book about it. [1] Also, ask for the advice of trained researchers such as your instructor or a research librarian.

• What research method(s) will you be using for your paper? Why did you make this method selection over other methods? If you haven’t made a selection yet, which methods are you considering?
• What specific methodological approaches are you most interested in exploring in relation to the chosen literary work?
• What is your plan for researching your method(s) and its major approaches?
• What was the most important lesson you learned from this page? What point was confusing or difficult to understand?

Write your answers in a webcourse discussion page.

• Introduction to Research Methods: A Practical Guide for Anyone Undertaking a Research Project  by Catherine, Dr. Dawson
• Practical Research Methods: A User-Friendly Guide to Mastering Research Techniques and Projects  by Catherine Dawson
• Qualitative Inquiry and Research Design: Choosing Among Five Approaches  by John W. Creswell  Cheryl N. Poth
• Qualitative Research Evaluation Methods: Integrating Theory and Practice  by Michael Quinn Patton
• Research Design: Qualitative, Quantitative, and Mixed Methods Approaches  by John W. Creswell  J. David Creswell
• Research Methodology: A Step-by-Step Guide for Beginners  by Ranjit Kumar
• Research Methodology: Methods and Techniques  by C.R. Kothari

Strategies for Conducting Literary Research Copyright © 2021 by Barry Mauer & John Venecek is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Methodological Approaches to Literature Review

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• First Online: 09 May 2023
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• Dennis Thomas 2 ,
• Elida Zairina 3 &
• Johnson George 4  

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The literature review can serve various functions in the contexts of education and research. It aids in identifying knowledge gaps, informing research methodology, and developing a theoretical framework during the planning stages of a research study or project, as well as reporting of review findings in the context of the existing literature. This chapter discusses the methodological approaches to conducting a literature review and offers an overview of different types of reviews. There are various types of reviews, including narrative reviews, scoping reviews, and systematic reviews with reporting strategies such as meta-analysis and meta-synthesis. Review authors should consider the scope of the literature review when selecting a type and method. Being focused is essential for a successful review; however, this must be balanced against the relevance of the review to a broad audience.

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Systematic Reviews in Educational Research: Methodology, Perspectives and Application

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Thomas, D., Zairina, E., George, J. (2023). Methodological Approaches to Literature Review. In: Encyclopedia of Evidence in Pharmaceutical Public Health and Health Services Research in Pharmacy. Springer, Cham. https://doi.org/10.1007/978-3-030-50247-8_57-1

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1.5: What is Literary Analysis?

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• Heather Ringo & Athena Kashyap
• City College of San Francisco via ASCCC Open Educational Resources Initiative

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What is Literary Analysis?

"Magnifier 1" by Dave Edens is licensed under CC BY-NC-ND 2.0

In the first chapter of the introduction, we defined Literature as "written work valued for superior or lasting artistic merit" (" literature 3b "). As an adjective, then, literary is defined as "[o]f or relating to the writing, study, or content of literature, esp. of the kind valued for quality of form; of the nature of literature" (" literary A1"). Finally, analysis is essentially the breaking apart of anything into its composite parts for close-examination. Literary analysis, then, is the deep examination of a work of literature. When you think of literary analysis, think of holding up a magnifying glass to the details of language in a work of literature.

Literary Analysis = Close Reading

Students may have encountered previous teachers using the term "close reading." When teachers use this term, it usually means engaging with a text on a deeper level than when reading for entertainment or information: that is, looking not just at what is written (the message, also known as content ), but how it is said (the language used to send the message, also known as form ). Literary Analysis and Close Reading are two words with, for all intents and purposes, the same meaning. The major difference is that, while close reading techniques can be used on any form of writing, literary analysis is more specific to the field of literature.

When performing literary analysis, some questions literary critics , or scholars of literature, might ask themselves include:

• What is the theme or motif of this text?
• What patterns can I detect across this text, or what patterns can I detect across this genre of literature which are also present in this text? And what might these patterns indicate about the meaning or significance of this text?
• What literary devices are featured in this text? How might an analysis of these formal features deepen understandings of the text?
• What kinds of characters are featured in this text?
• What qualities make literature "good" or of "lasting artistic merit" ("literature 3b")?
• How might the language or diction of the text reflect cultural or historical meanings most common readers miss? How might such meanings deepen or illuminate our understanding of the text?
• What have previous scholars misinterpreted or missed about this work, and how can I bring neglected aspects of this text to light?
• In what ways does this text engage with or elucidate other works of literature, philosophical theories, historical events, or social movements?
• What might this text reveal about what it means to be human? How might it deepen my understanding of my place in the world?

How to Perform Literary Analysis

The previous questions might seem amorphous or overwhelming in their implications. So how can we practice close-reading in a practical way?

• Read the text 3 times : once, to get the gist. Once, for deep understanding. And, lastly, once for deep analysis. Literary critics often read the same texts many more times! Don't be afraid to read as many times as you need.
• Engage with the text. Highlight, annotate, mark pages with sticky notes or flags, and take notes as you read. Look for anything weird, surprising, confusing, or exciting that jumps out at you. Why do you think this feature exists in the text? Don't be afraid to write down any questions which bubble up as you read: it is likely other scholars/students have questions too, and sharing your questions with classmates or your professor might prompt a fascinating discussion! For example, an observant student once asked (his question is paraphrased here): "In Hamlet by William Shakespeare, I noticed Hamlet and Horatio seem to think the ghost of Old Hamlet is actually a demon. But later Hamlet seems to think the ghost is an actual ghost. Gertrude does not see the ghost, making it seem like it is a figment of Hamlet's troubled mind. What are we as readers meant to believe?" This question prompted other students to share their cultural heritage's perspective on demons, the afterlife, and even to share ghost stories. Eventually, this discussion led students to research Elizabethan perspectives on ghosts and demons. This made for a lively class discussion and several strong essays all because one student dared to engage with the text by asking a question!
• Keep track of any patterns. Does a certain image keep popping up, like a heart, a rose, or a color? This might be a symbol: a physical object signifying an abstract meaning. What might this repeated image mean in the context of the rest of the story? For example, in Ambrose Bierce's short story "An Occurrence at Owl Creek Bridge," the color gray repeats many, many times. Why? What might this indicate about the color gray? What might the color gray have symbolized to Bierce, or to readers alive during the Civil War?
• Deeply examine and question literary features such as titles, characters, settings, figurative language, and dialogue. Constantly ask yourself: why is this here? As readers, we should usually assume authors, as masters of their craft, make choices intentionally. And even if unintentional, what might subconscious slips indicate about meaning? In short, how does the form or structure of this writing influence my understanding of its message? Other literary features you might examine include: pronouns, active vs. passive voice, verbs (what tense is being used? any tense shifts?), nouns, word order or syntax, rhyme, paragraphing, italics, space on the page, text space (how much space or description or lines does a given character receive?), proximity (do similar words, phrases, characters, or ideas often occur in close proximity?). All of these seemingly small details can hold big implications!

Works Cited

"literature, n." OED Online , Oxford University Press, June 2019, www.oed.com/view/Entry/109080. Accessed 28 August 2019.

"literary, adj. and n." OED Online , Oxford University Press, June 2019, www.oed.com/view/Entry/109067. Accessed 28 August 2019.

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• Published: 27 May 2024

Knowledge creates value: the role of financial literacy in entrepreneurial behavior

• Shulin Xu 1 &
• Kangqi Jiang 2  

Humanities and Social Sciences Communications volume  11 , Article number:  679 ( 2024 ) Cite this article

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Under the backdrop of economic globalization and the digital economy, entrepreneurial behavior has emerged not only as a focal point of management research but also as an urgent topic within the domain of family finance. This paper scrutinizes the ramifications of financial literacy on household entrepreneurial behavior utilizing data from China’s sample of the China Household Finance Survey spanning the years 2015 and 2017. Employing the ordered Probit model, we pursue our research objectives. Our findings suggest that financial literacy exerts immediate, persistent, and evolving positive effects on households’ engagement in entrepreneurial activities and their proclivity toward entrepreneurship. Through the mitigation of endogeneity in the regression model, the outcomes of the two-stage regression corroborate the primary regression results. An examination of heterogeneity unveils noteworthy disparities between urban and rural areas, as well as gender discrepancies, in how financial literacy influences household entrepreneurial behavior. Furthermore, this study validates three potential pathways—namely income, social network, and risk attitude channels—demonstrating that financial literacy significantly augments household income, expands social networks, and enhances risk attitudes. Moreover, through supplementary analysis, we ascertain that financial education amplifies the impact of financial literacy on entrepreneurial behavior. Our study contributes to the enrichment of human capital theory and modern entrepreneurship theory. It advocates for robust efforts by governments and financial institutions to widely disseminate financial knowledge and foster family entrepreneurship, thereby fostering the robust and stable operation of both the global financial market and the job market.

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Introduction.

With the advancement of the global digital economy, entrepreneurship has increasingly emerged as a pivotal strategy for corporate strategic development (Cheng et al., 2024 ) and for the accumulation of residents’ wealth. Entrepreneurial behavior entails the optimization and integration of one’s own resources to generate substantial economic or social value. Individuals are expected to possess organizational and managerial abilities and to deliberate upon and determine the operational strategies for services, technologies, and equipment to engage in rational entrepreneurial endeavors (Levesque and Minniti, 2006 ). Entrepreneurial activities play a crucial role in fostering labor market prosperity, achieving social equity, enhancing the flow of social capital, and sustaining the healthy and stable functioning of the social economy (Hombert et al., 2020 ; Schmitz, 1989 ). They also hold promise for alleviating the current economic crisis through the exploitation of renewable energy sources (Abou Houran, 2023 ) and enhancing firm productivity (Tao et al., 2023 ). According to human capital theory, as posited by Becker ( 2009 ), human capital encompasses the cumulative knowledge, skills, cultural sophistication, and health status of an individual. Financial literacy, as a form of scarce human capital, constitutes a significant driver of entrepreneurial decision-making and motivation. On the one hand, the migration of individuals possessing high financial literacy fosters the transfer of theoretical knowledge and technical expertise, while the symbiotic interaction of knowledge, skills, and capabilities nurtures a reservoir of knowledge and entrepreneurial dynamism. On the other hand, individuals with elevated financial literacy are more likely to enhance their awareness and identification of opportunities within an imbalanced market, thereby bolstering their self-awareness and catalyzing independent innovation and entrepreneurship. Moreover, in line with modern entrepreneurship theory, Alvarez and Busenitz ( 2001 ) contend that entrepreneurial opportunities are endogenous. Entrepreneurs equipped with the requisite skills and knowledge pertaining to entrepreneurship are better positioned to identify and exploit opportunities. Additionally, they possess extensive and efficacious social networks, enabling them to access valuable information and resources conducive to enhancing entrepreneurial performance. Against the backdrop of economic globalization and the digital economy, governments worldwide are actively encouraging entrepreneurial engagement. They have enacted financial support policies and preferential tax measures to enhance the domestic entrepreneurial ecosystem and to galvanize individuals’ entrepreneurial potential. For instance, the Chinese government introduced numerous policies aimed at fostering entrepreneurial endeavors in 2018. Similarly, the U.S. government is proactively implementing several initiatives to foster an environment conducive to the flourishing of small and medium-sized enterprises, striving to institute permanent tax relief measures for small businesses.

However, the enhancement of the entrepreneurial environment can engender a proliferation of entrepreneurial opportunities (Segaf, 2023 ). Yet, the ability of entrepreneurs to seize such opportunities for proactive entrepreneurship remains constrained by numerous factors, including the development of the digital economy (Sussan and Acs, 2017 ; Firmansyah et al., 2023 ; Zhao and Weng, 2024 ), social networks (Karlan, 2007 ; Qi and Chun, 2017 ), human capital (Dawson et al., 2014 ), risk attitudes (Osman, 2014 ), government regulations (Black and Strahan, 2002 ), institutional environments (Burtch et al., 2018 ; Lan et al., 2018 ), institutional changes within universities (Eesley et al., 2016 ), financial constraints (Hurst and Lusardi, 2004 ; Asongu et al., 2020 ), policy interventions (Sharipov and Zaynuidinova, 2020 ), cognitive abilities (Haynie et al., 2012 ), personal beliefs regarding character and opportunity (Pidduck et al., 2023 ), household background, income levels, and trust (Kwon and Arenius, 2010 ). Entrepreneurial activities entail the identification and exploitation of entrepreneurial opportunities and the utilization of entrepreneurial resources. These endeavors invariably entail considerations of business management, financial matters, and professional concerns. Entrepreneurs must possess adequate financial literacy to ensure the rationality of entrepreneurial decision-making, the judicious allocation of entrepreneurial resources, the mitigation of venture capital risks, and the effective operation of enterprises. Drawing from a review of international experiences, scholars predominantly emphasize macroeconomic environments (Arin et al., 2015 ), institutional frameworks, cultural disparities (Liang et al., 2018 ), credit constraints (Ma et al., 2018 ), liquidity constraints (Beck et al., 2018 ), as well as micro-level factors such as social networks (Yueh, 2009 ), and information availability (Companys and McMullen, 2007 ), when examining the determinants of entrepreneurial activities.

From a current static perspective, existing studies indicate a close association between financial literacy and a range of financial behaviors and economic outcomes. A wealth of evidence demonstrates that financial literacy fosters household income growth (Behrman et al., 2012 ), facilitates the expansion of social networks (Kinnan and Townsend, 2012 ; Suresh, 2024 ), and enhances residents’ risk attitudes (Mishra, 2018 ), all of which can also impact entrepreneurial behavior. Thus, we posit that financial literacy may influence household entrepreneurial activities through three primary channels. Firstly, prior research has affirmed that higher levels of financial literacy correlate with enhanced information acquisition and processing abilities, leading to more informed decision-making (Forbes and Kara, 2010 ; Molina-García et al., 2023 ), fostering healthier and more rational investment philosophies and habits. These factors, in turn, contribute to improved investment returns and elevated household income levels. Household entrepreneurial activities necessitate sufficient financial support for use as entrepreneurial funds, and throughout the entrepreneurial process, a continuous stream of funds is required for operational and managerial purposes. Household wealth and income serve as the principal resources for family entrepreneurship, indispensable for entrepreneurial endeavors.

Secondly, studies by Korkmaz et al. ( 2021 ), Mishra ( 2018 ), and Mushafiq et al. ( 2023 ) reveal that heightened levels of financial literacy correlate with an increased likelihood of risk-taking or risk-neutrality and diminished tendencies toward risk aversion. This indicates that enhancing financial literacy significantly bolsters individuals’ risk appetites and reduces risk aversion. Entrepreneurship inherently entails risk-taking behavior and a willingness to embark on new ventures. Therefore, risk attitudes are intricately linked to entrepreneurial behavior. Research by Van Praag and Cramer ( 2001 ), as well as Long et al. ( 2023 ), spanning a 41-year study of 5800 Danish students, illustrates significant disparities in entrepreneurial willingness among individuals with varying risk preferences, with risk-conscious individuals exhibiting stronger inclinations towards entrepreneurship. Thirdly, Hong et al. ( 2004 ) and Chen et al. ( 2023 ) posit that financial literacy may proliferate through word-of-mouth or observational learning methods, thereby expanding social network structures. Social networks, as a distinct form of family capital alongside physical and human capital, facilitate risk-sharing (Munshi and Rosenzweig, 2016 ) and augment the likelihood of accessing formal or informal financing (Kinnan and Townsend, 2012 ). It is widely acknowledged that family entrepreneurial activities, to some extent, depend on the support offered by family members, relatives, and friends in terms of information, financing, and business operations and management (Munshi and Rosenzweig, 2016 ). Consequently, broader family social networks correlate with heightened probabilities of choosing entrepreneurship. Financial literacy can effectively mitigate information asymmetry in financial markets by enhancing family social networks, reducing monitoring costs and risky borrowing, and addressing adverse selection and moral hazard issues, thereby alleviating financing constraints and fostering family entrepreneurial activities.

The aforementioned analysis offers insights into the impact of financial literacy on household entrepreneurial activities. Nevertheless, a pivotal inquiry remains: can financial literacy effectively bolster the likelihood of family entrepreneurial choices and entrepreneurial motivation in the long term, thereby dynamically enhancing family entrepreneurial behavior? Furthermore, the urban–rural dichotomy and gender disparities in financial literacy prevalent in numerous countries may introduce variations in the current, long-term, and dynamic effects of financial literacy on residents’ entrepreneurial behavior. This prompts us to explore the existence of such disparities and whether the mechanisms underlying these differences are mediated through income, social networks, and risk attitudes. To address these gaps in the literature and elucidate the raised questions, we propose to establish a robust empirical framework. This framework will enable us to examine how financial literacy influences local households’ entrepreneurial behavior. Figure 1 illustrates our theoretical framework, delineating how financial literacy impacts household entrepreneurial activities through three primary channels.

Theoretical design and framework.

This study empirically examines the immediate, long-term, and evolving impacts of financial literacy on household entrepreneurial activities using data from the China Household Finance Survey (CHFS) for the years 2015 and 2017. We employ the ordered Probit model to fulfill our research objectives. The findings indicate that financial literacy exerts immediate, enduring, and evolving positive effects on households’ involvement in entrepreneurial activities and their propensity toward entrepreneurship. Accounting for the endogeneity of the regression model, the results from the two-stage regression reinforce the primary regression outcomes. Heterogeneity analysis reveals significant urban–rural disparities and gender differences in the influence of financial literacy on household entrepreneurial behavior. Additionally, this research substantiates three potential pathways: income, social network, and risk attitude channels. It demonstrates that financial literacy significantly enhances household income, expands social networks, and improves risk attitudes. Further analysis reveals that financial education amplifies the impact of financial literacy on entrepreneurial behavior.

Our contributions are multifaceted: Firstly, this study advances the understanding of entrepreneurial behavior in several dimensions. Previous research primarily focuses on factors influencing entrepreneurial behavior, such as social networks (Karlan, 2007 ), human capital (Dawson et al., 2014 ), risk attitudes (Osman, 2014 ), government regulation (Black and Strahan, 2002 ), institutional environments (Lu and Tao, 2010 ), financial constraints (Hurst and Lusardi, 2004 ), cognitive ability (Haynie et al., 2012 ), household background, and trust (Kwon and Arenius, 2010 ). Few studies delve into the influence of financial literacy on entrepreneurial behaviors. We address this gap and find that financial literacy positively impacts entrepreneurial behaviors. Secondly, we measure entrepreneurial behavior at the family level, including initiative entrepreneurship in the household finance domain, thereby expanding the existing literature beyond the use of new ventures as a measurement indicator. Most importantly, our study contributes to the enrichment of human capital theory and entrepreneurship theory within the realm of household finance, providing valuable insights into the theoretical understanding of the relationship between financial literacy and entrepreneurial behavior. Thirdly, in mechanism analysis, our study is the first to investigate the three channels through which financial literacy affects household entrepreneurial behavior using CHFS data from 2015 and 2017. Lastly, our study conducts heterogeneity analysis and presents evidence of significant urban-rural disparities and gender heterogeneity in the impact of financial literacy on household entrepreneurial behavior. Furthermore, this research enhances the comprehension of the relationship between financial literacy and financial behavior. While prior studies predominantly focus on the immediate effect of financial literacy on financial behavior, our study delves deeper. We not only explore the immediate impact of financial literacy on entrepreneurial behavior but also probe into its long-term and dynamic improvement characteristics, elucidating the internal mechanisms driving these effects. For policymakers, our research provides a theoretical foundation and empirical validation to formulate entrepreneurship policies. By comprehensively understanding how financial literacy influences household entrepreneurial behavior and acknowledging the heterogeneous effects across urban–rural divides and gender disparities, governments can tailor policies to effectively support and promote entrepreneurship, thereby fostering economic growth and development. Based on the conclusions of this study, governments can fully consider residents’ financial literacy and enhance various influencing channels while encouraging innovation and entrepreneurship, thereby facilitating wealth accumulation, enhancing family welfare, and elevating the national level of innovation and entrepreneurship in entrepreneurial activities. For businesses, our research underscores the pivotal role of financial literacy in entrepreneurial activities, constituting an indispensable aspect of “entrepreneurship.” In the actual operation and management processes of enterprises, managers should prioritize the cultivation of financial literacy, as it can aid in cost reduction and the expansion of social networks, thereby realizing the healthy and stable operation of enterprises.

In the rest of this paper, the section “Literature review” reviews the relevant literature. Section “Methodology” outlines the empirical model and introduces the variables and datasets. Section “Empirical results” describes and discusses the empirical results. Section “Heterogeneity analysis” reports a heterogeneous analysis in geography, gender and income level. The section “Potential mechanism analysis” and “Further analysis: the role of financial education” discusses three channels and analyses. Section “Conclusion” concludes and policy implications.

Literature review

Factors affecting financial literacy.

The financial literacy level of respondents is primarily influenced by both micro and macro environments. Concerning microelements, empirical evidence provided by Lusardi and Mitchell ( 2014 ) suggests that men tend to exhibit higher financial literacy levels than women, largely due to women’s perceived lack of self-confidence. Notably, only elderly women demonstrate high levels of self-assurance, alongside robust investment motivation and financial management interest (Bucher‐Koenen et al., 2017 ). Furthermore, Van Rooij et al. ( 2011 ) contend that age and financial literacy follow a hump-shaped distribution pattern, indicating that young individuals under 15 and seniors over 60 typically exhibit the lowest levels of financial literacy, while the middle-aged group tends to have the highest level. The accumulation of social experience serves to enhance the financial literacy level of the middle-aged demographic (Fong et al., 2021 ; Gamble et al., 2015 ). Moreover, Lusardi et al. ( 2012 ) found a positive correlation between the number of years of education and financial literacy, implying that higher levels of education contribute to the advancement of financial literacy.

The influence of macro-elements on financial literacy permeates various facets, shaping the financial knowledge and skills of young individuals through diverse formal and informal channels such as families, schools, communities, and workplaces (Grohmann et al., 2015 ). Lusardi et al. ( 2010 ) elucidated a direct correlation between the financial literacy of young individuals and the educational level and financial behavior of their parents. Moreover, Lachance ( 2014 ) uncovered that the educational level of neighbors also impacts children’s financial literacy. Danes and Haberman ( 2007 ) observed that while short-term financial literacy education and training exert some effect, direct parental education remains a more potent influencer of children’s financial literacy. Furthermore, parents’ active involvement in financial education and training programs contributes significantly to shaping children’s financial literacy. However, the literature presents mixed findings regarding the efficacy of financial education initiatives. Mandell ( 2008 ) found no enduring effects of financial education in high school on personal financial behavior, whereas Fernandes et al. ( 2014 ) suggested that financial literacy education has a limited impact, with its effectiveness waning over time. Conversely, Bruhn et al. ( 2013 ) and Lührmann et al. ( 2015 ) argued that financial education substantially enhances high school students' financial literacy. Moreover, Song ( 2020 ) conducted a field experiment in China, demonstrating that short-term financial education projects can effectively elevate financial literacy levels, thereby improving financial behavior among individuals with low financial literacy. Regarding social security mechanisms, extant literature indicates that improvements in social security significantly correlate with enhancements in residents’ financial literacy (Lusardi and Mitchell, 2011 ). Additionally, the social milieu plays a pivotal role, with countries experiencing high inflation rates and communities characterized by a high level of financial literacy, transparent banking policies, and frequent interactions with financially literate groups positively influencing individuals’ financial literacy levels (Lachance, 2014 ; Lusardi and Mitchell, 2011 ).

With the rapid proliferation of digital technology in the economic sphere, digitization has emerged as a ubiquitous topic of discussion among scholars (Chen and Jiang, 2024 ; Koskelainen et al., 2023 ; Jiang et al., 2024 ). The digitization of conventional financial industries and the entry of internet companies have catalyzed the growth of the digital finance sector (Jiang et al., 2022 ). Pertinent literature delves into the relationship between the advancement of digital finance and financial literacy (Prete, 2022 ; Yang et al., 2023 ). For instance, Yang et al. ( 2023 ), utilizing data from the China Household Finance Survey, found that financial literacy significantly fosters individuals’ engagement in digital finance, with this effect displaying notable heterogeneity. Drawing from cross-national data, Prete ( 2022 ) observed that the utilization of digital payment tools and platforms correlates with elevated levels of financial literacy. Koskelainen et al. ( 2023 ) endeavored to explore how varied aspects of digitization, encompassing digital financial behaviors, digital interventions, and financial technology, influence individuals’ financial literacy. Furthermore, they propose methodologies for constructing a metric of digital financial literacy.

Entrepreneurial behavior

Existing research concentrates on the determinants of entrepreneurial behavior, encompassing both macroelements and microelements. Macroelements comprise the economic environment, institutional framework, cultural disparities, credit and liquidity constraints, social networks, and information environment.

Economic development stimulates market demand for entrepreneurs and fosters entrepreneurial activities (Arin et al., 2015 ; AlOmari, 2024 ). Zhao and Weng ( 2024 ) observed that the advancement of the digital economy enhances urban innovation activities. Utilizing cross-cultural entrepreneurial cognition models, Lim et al. ( 2010 ) validated the impact of institutions on entrepreneurial activities. A nation’s formal institutions can dictate its level of economic freedom, influencing households’ entrepreneurial motivations and the types of entrepreneurial ventures pursued (McMullen et al., 2008 ; Kshetri, 2023 ). Asoni and Sanandaji ( 2014 ) demonstrated that proportional taxes do not significantly affect entrepreneurial activities, whereas progressive taxes notably boost entrepreneurship. Dong et al. ( 2022 ) revealed that local leadership turnover may serve as a barrier to entrepreneurship. Additionally, the environment for protecting private property rights is intertwined with entrepreneurial activities (Levine and Rubinstein, 2017 ; Hou et al., 2023 ). The deregulation of bank branches has intensified competition within the banking sector while greatly enhancing credit accessibility, thereby promoting household entrepreneurship (Black and Strahan, 2002 ). In terms of cultural disparities, Mora ( 2013 ) posited that such differences lead to variations in entrepreneurial ideas and behavioral tendencies, with entrepreneurial activities more likely to flourish in a cultural milieu characterized by low uncertainty, fostering independent thinking, valuing wealth, and eschewing conformity (Lee et al., 2020 ). Freytag and Thurik ( 2007 ), drawing upon data from European and American countries, concluded that culture exerts a positive and significant impact on entrepreneurial preferences but does not significantly influence actual entrepreneurial activities.

The primary challenge encountered by entrepreneurial endeavors is liquidity constraints (Banerjee and Newman, 1993 ; Ma et al., 2018 ). Banerjee and Newman ( 1993 ) contend that financial support in the form of low-interest loans, financing guarantees, and credit assurances alleviates financing constraints during entrepreneurial pursuits, thereby mitigating business risks. Information asymmetry may curtail the availability of credit services for entrepreneurs and impede household entrepreneurial activities (Stiglitz and Weiss, 1981 ). Wang ( 2012 ) constructed models for employment and housing decision-making, revealing that liquidity constraints influence the interaction between personal wealth and entrepreneurial decision-making. The emergence of digital finance and the Internet has mitigated information asymmetry, moral hazard, and adverse selection, safeguarding entrepreneurs’ financial security (Beck et al., 2018 ; Qing et al., 2024 ). Furthermore, it has expanded product sales channels and enhanced the accessibility of cost-effective financial services (Berger and Udell, 2002 ; He and Maire, 2023 ), thereby fostering household entrepreneurial behavior. However, Hurst and Lusardi ( 2004 ) posit that credit constraints are not the primary impediment to entrepreneurial activities, as entrepreneurs can mitigate such constraints through savings and informal credit channels.

Social networks play a pivotal role in entrepreneurial endeavors. A robust social network can furnish material capital, technical expertise, vital information, and emotional support for household entrepreneurship (Yueh, 2009 ; Yates et al., 2023 ). Social networks effectively alleviate information asymmetry, mitigate adverse selection and moral hazard (Karlan, 2007 ; Kerr and Mandorff, 2023 ), and serve as an implicit guarantee mechanism, reducing the likelihood of default on non-governmental loans (Karlan, 2007 ). Consequently, social networks diminish liquidity constraints, thereby promoting households’ inclination towards entrepreneurship. According to entrepreneurial vigilance theory, information asymmetry gives rise to entrepreneurial opportunities, underscoring the significance of information disparities in entrepreneurial activities (Companys and McMullen, 2007 ; Wang et al., 2024 ). Trust fosters the flow of information among different social groups, cultivating social capital, and residents with greater entrepreneurial opportunities are more inclined towards entrepreneurship (Kwon and Arenius, 2010 ).

Microelements encompass human capital and psychological characteristics. Regarding human capital, Berkowitz and DeJong ( 2005 ) contend that individuals with higher education levels can swiftly and accurately identify potential entrepreneurial opportunities and efficiently allocate internal and external resources. However, compared to those with average education levels, individuals with higher education face higher opportunity costs, leading to lower entrepreneurial motivation. Additionally, some studies find no significant effect of education on entrepreneurial activities (Van der Sluis et al., 2008 ) or observe a non-linear U-shaped relationship (Poschke, 2013 ). Mankiw and Weinzierl ( 2011 ) ascertain that a lack of personal ability significantly dampens households’ entrepreneurial spirit. Entrepreneurial behavior necessitates the acquisition, organization, and analysis of information, with cognitive ability reflecting an individual’s capacity to process, store, and extract information. Thus, Haynie et al. ( 2012 ) posit that cognitive ability may influence an individual’s entrepreneurial activities. Other studies explore the relationship between an individual’s age (Caliendo et al., 2014 ), gender (Koellinger et al., 2013 ), marital status, political outlook (Yueh, 2009 ), entrepreneurial training (Blattman et al., 2014 ), work experience (Lazer, 2005 ), type of employment (Djankov et al., 2005 ), health status (Rey-Martí et al., 2016 ), management elements (Cheng et al., 2022 ), education (Cui and Bell, 2022 ; Adeel et al., 2023 ; Lin et al., 2023 ), entrepreneurial identity (Stevenson et al., 2024 ), and entrepreneurial behavior.

Concerning household wealth, the majority of studies posit a positive correlation between household wealth and entrepreneurial behavior (Evans and Jovanovic, 1989 ). Some studies also explore the impact of accidental exogenous events and policy reforms leading to increased wealth on household entrepreneurial behavior (Blattman et al., 2014 ). In terms of psychological characteristics, extant literature primarily discusses the effect of risk attitude on entrepreneurial behavior. Most studies demonstrate that individual risk preference significantly influences entrepreneurial behavior, with risk-tolerant individuals exhibiting a greater propensity for entrepreneurial activities (Osman, 2014 ). However, Hu ( 2014 ) suggests that risk-neutral individuals are more inclined to engage in active entrepreneurial activities, whereas risk-averse and risk-tolerant individuals are more predisposed to becoming waged workers.

Existing research predominantly concentrates on the determinants of financial literacy and entrepreneurial behavior. Few studies explore the impact of financial literacy on entrepreneurial behavior. This study aims to address this gap.

Methodology

Refer to prior studies (Dong et al., 2022 ; Yang et al., 2023 ; Zhao and Li, 2021 ; Xu et al., 2023 ; Graña-Alvarez et al., 2024 ), this study uses the \({{\rm {Probit}}}\) model to study the current and long-term effects of financial literacy on household entrepreneurial behavior. The basic regression equation is as follows:

When we study the current effect, \({{{\rm {Entrepre}}}}_{i}\) refers to entrepreneurship behavior of household \(i\) in 2015. \({{{\rm {Literacy}}}}_{i}\) represents financial literacy of household i in 2015. \({X}_{i}^{{\prime} }\) refers to control variables in 2015, including \({{\rm {gender}}}\) , \({{\rm {Age}}}\) , \({{{\rm {Age}}}}^{2}\) , \({{\rm {Health}}}\) , \({{\rm {Marriage}}}\) , \({{\rm {Education}}}\) , \({{\rm {RL}}}\) , \({{\rm {RN}}}\) , \({{\rm {RA}}}\) , \({\rm {{CPC}}}\) , \({{\rm {FS}}}\) , \({{\rm {Assets}}}\) , \({{\rm {NC}}}\) , \({{\rm {NE}}}\) , \({{\rm {House}}}\) , and \({{\rm {NU}}}\) . 1 \({\mu }_{i}\) is the error term. In the above regression model, we control the province-fixed effect. The current effect is a static effect based on cross-sectional data, which mainly examines whether the current financial literacy can affect the current household entrepreneurial behavior. Most existing studies only use cross-sectional data to consider current effects.

When we study the long-term effect, \({{{\rm {Entrepre}}}}_{i}\) refers to entrepreneurship behavior of household \(i\) in 2017. \({{{\rm {Literacy}}}}_{i}\) represents the financial literacy of household \(i\) in 2015. Other designs remain unchanged. The long-term effect is mainly to test whether financial literacy can have an effect on lagging entrepreneurial behavior.

Furthermore, we use the \({{\rm {ordered}}\; {\rm {Probit}}}\) model to study the dynamic effect of financial literacy on household entrepreneurial behavior as follows:

Where \({{{\rm {Entrepre}}}}_{i}^{* }\) represents the changes in entrepreneurial behavior household \(i\) during 2015–2017, it is an ordered variable, denoted by −1, 0, and 1, respectively. \({{{\rm {Literacy}}}}_{i}\) represents financial literacy of household \(i\) in 2015. \({\varphi }_{i}\) refers to control variables in 2015. The expression of \(F\) \(\left(\cdot \right)\) function in the model ( 2 ) is as follows:

Where \({{{\rm {Entrepre}}}}_{i}^{* {\prime\prime} }\) is the latent variable of \({{{\rm {Entrepre}}}}_{i}^{* }\) . \({\varepsilon }_{1} < {\varepsilon }_{2} < L < {\varepsilon }_{3}\) all are tangent points. \({{{\rm {Entrepre}}}}_{i}^{* {\prime\prime} }\) has to satisfy:

Financial literacy

Following prior studies (Lusardi and Mitchell, 2014 ; Zhao and Li, 2021 ), Table 1 reports the descriptive statistics of the answers to questions related to financial literacy as survey respondents’ financial literacy level denoted as \({{{\rm {Literacy}}}1}_{i}\) . It shows that 28.67%, 16.39%, and 51.94% of the households answered the questions of interest rate calculation, inflation understanding, and venture capital correctly, respectively, indicating that most Chinese households do not understand and calculate inflation. A total of 48.17% of the households incorrectly answered the questions about interest rate calculation, implying that Chinese households lack the ability to calculate the interest rate.

Factor analysis is also often used to measure financial literacy. Following Lusardi and Mitchell ( 2014 ), we believe that the level of financial literacy represented by wrong answers and failure to answer differs. Considering this, we construct two dummy variables for each question. Therefore, we obtain six dummy variables, including dum1–dum6. The KMO test results in Table 2 show that factor analysis is reasonable. Finally, this study selects the factors with an eigenvalue greater than one as respondents’ financial literacy denoted as \({{\rm {Literacy}}}2\) .

Referring to Zhao and Li ( 2021 ), the explained variable in this study is household entrepreneurial behavior, including \({{\rm {Enterpre}}}1\) and \({{\rm {Entrepre}}}2\) , \(\,{{Entrepre}1}^{* }\) , and \(\,{{{\rm {Entrepre}}}2}^{* }\) . \({{\rm {Entrepre}}}1\) measures whether the interviewed household participates in entrepreneurial behavior and is equal to one when the household is engaged in a self-employed business operation. \({{\rm {Entrepre}}}2\) measures whether the entrepreneurial behavior of entrepreneurial families is active and is equal to 1 if the reason for the household’s participation in entrepreneurship is “want to be the boss”, “earn more”, and “want to be more flexibles and free”. \({{{\rm {Entrepre}}}1}^{* }\) represents the changes in entrepreneurial behavior of households during 2015–2017. \({{{\rm {Entrepre}}}2}^{* }\) represents the changes in initiative entrepreneurship of households during 2015–2017. Its construction method is shown in Table 3 .

The survey data collected by the China Household Finance Survey in 2015 and 2017 are used in this paper. This database collects a large amount of information about Chinese residents through scientific surveys and statistical methods, and it is widely used in scientific research. The CHFS has designed relevant questions about the financial literacy of the interviewees. Samples with missing values are excluded. Table 4 provides the descriptive statistics of the variables. It is worth mentioning that CHFS has been widely adopted (Zhao and Li, 2021 ; Yang et al., 2023 ).

Empirical results

Financial literacy and entrepreneurial behavior.

Columns (1)–(4) in Table 5 report the estimated results of the current effect. The estimated coefficients of financial literacy in columns (1) and (2) are significant at the level of 5% and 1%, respectively, indicating that the improvement of financial literacy can significantly improve the possibility of household entrepreneurship. This result shows that financial literacy is an important determinant of household entrepreneurship decision-making, and it is the driver of household entrepreneurial activities. We found an interesting conclusion from the estimation results of the control variables. From the results in columns (1)–(4), we find that the education level of the head of the household is significantly negatively correlated with the household entrepreneurial behavior. However, the impact of our financial literacy on household entrepreneurial behavior was positive. This result seems to go against our intuition. We think that because financial literacy education is different from general education. Ordinary education mainly emphasizes the popularization and popularization of knowledge, while financial literacy education should be a kind of targeted specialized education. This conclusion supports the conclusion of the majority of the current literature.

The regression model may suffer endogenous problems. Endogeneity mainly comes from two aspects. First, a reverse causal relationship exists between financial literacy and household entrepreneurial choice. The accumulation of entrepreneurial experience may also lead to improved financial literacy. Second, the respondents may guess the answers to financial questions, leading to inaccurate measurement of financial literacy. Following Bucher-Koenen and Lusardi ( 2011 ) and Jappelli and Padula ( 2013 ), we selected the highest educational level among parents as an instrumental variable. We chose this instrumental variable for two main reasons. First, the family is the first place where individuals acquire and learn knowledge after they are born. Generally speaking, the higher the education level of parents, the more emphasis they will put on the education of their children. Parents with a high level of education can better help their children develop study habits and guide their children to receive more and better education through precepts and deeds and subtle influences in the daily life of the family. This will allow them to know more about their computing power and knowledge of economics and finance and possibly have a higher level of financial literacy. Second, the educational level of parents is determined before their children start a business and is independent of the entrepreneurial decisions of their children’s families. This suggests that parents’ educational level is strictly exogenous relative to their children’s entrepreneurial decisions. Therefore, we think it is appropriate to use parental education level as an instrumental variable. The problem that cannot be ignored is that parents with higher education levels are more likely to provide more resources for their children to start a business through their relationship network. We address this issue by controlling the parental network in our model. The results show that both the correlation test and the exogenous test of the instrumental variable of parental education level have passed, which verifies the validity of the instrumental variable to a certain extent. The results in Columns (3) and (4) in Table 5 support our conclusion.

Columns (5)–(8) in Table 5 report the estimated results of the current effect of financial literacy on household initiative entrepreneurship ( \({{\rm {Entrepre}}}2\) ). The results in columns (5) and (6) of Table 5 show that the estimated coefficients of financial literacy are significant at the level of 10%, indicating that financial literacy can help raise the household’s motivation for entrepreneurship in the current period and promote the initiative in entrepreneurship. Columns (7) and (8) in Table 5 , The DWH test, first-stage estimated and instrumental variables show that financial literacy will help raise the household’s motivation for entrepreneurship in the current period and promote the initiative in entrepreneurship.

Table 6 reports the estimated results of the long-term effect of financial literacy on household entrepreneurial behavior. No matter what index is used to measure financial literacy, the estimated coefficient of financial literacy is statistically significantly positive, indicating that financial literacy is beneficial to increasing the probability of households participating in entrepreneurial activities and taking the initiative in entrepreneurship in the long term.

Table 7 reports the estimation results of the ordered \({{\rm {Probit}}}\) model to estimate the dynamic improvement effect of financial literacy on household entrepreneurial behavior. In Table 7 , columns (1) and (2) show that no matter what index is used to measure financial literacy, the estimated coefficient of financial literacy is statistically significantly positive. After controlling endogenous concerns, we can obtain consistent results in columns (3) and (4). Columns (5)–(8) in Table 7 , no matter what index is used to measure financial literacy, the estimated coefficient of financial literacy is statistically significantly positive. We find that the improvement of financial literacy level is helpful in promoting the development of household entrepreneurial decision-making and initiative in entrepreneurship.

The above empirical results suggest that improving financial literacy levels may significantly promote family participation in entrepreneurial activities and household initiative in entrepreneurship. This conclusion is consistent with the conclusion of Xu et al. ( 2023 ), indicating that financial literacy may have current, long-term, and dynamic effects on some financial behaviors. This effect has the characteristics of current, long-term, and dynamic improvement. This study provides a reasonable explanation for the findings that financial literacy adds to entrepreneurs’ understanding of business activities and market dynamics, enabling them to discover entrepreneurial opportunities better.

Robustness checks

We conduct the robustness checks by replacing the proxy index of financial literacy. We construct three dummy variables, namely, \({{\rm {Dum}}}1\) , \({{\rm {Dum}}}3\) , and \({{\rm {Dum}}}\) 5. We use these three dummy variables to replace the explanatory variable \({{\rm {Entrepre}}}1\) or \({{\rm {Entrepre}}}2\) in the model (1) and model (2). \({{\rm {Dum}}}1\) means the answers the interest rate calculation question correctly, \({{\rm {Dum}}}2\) means the answers the inflation question correctly, \({{\rm {Dum}}}3\) means the answers the inflation question correctly. Table 8 reports the corresponding estimated results. The estimated coefficients of \({{\rm {Dum}}}1\) and \({{\rm {Dum}}}3\) are not significant. However, no matter what index is used to measure financial literacy, the estimated coefficient of \({{\rm {Dum}}}5\) is statistically significantly positive, indicating that venture capital literacy can significantly improve household entrepreneurial activities and motivation to initiate entrepreneurship.

In addition, we use respondents’ attention to economic and financial information to measure it denoted as \({Attention}\) . We use \({attention}\) to replace the explanatory variable \({Literacy}1\) or \({Literacy}2\) in the model (1) and model (2). Table 9 results show that the estimated coefficient of \({Attention}\) is statistically significantly positive. It shows that attention to financial and economic information can significantly improve household entrepreneurial activity and motivation to initiate entrepreneurship, which also indicates that the influence of financial literacy is robust.

Heterogeneity analysis

Urban–rural differences.

Significant differences exist between urban and rural areas in China’s economic environment, and household entrepreneurship behavior may show varying tendencies in different environments. Therefore, the effect of financial literacy on household entrepreneurship may have urban–rural heterogeneity. Table 10 reports the estimated results. Combining the size of the explanatory variable coefficient and the test results of inter-group coefficient difference, we find that the effect of financial literacy on households’ participation in entrepreneurial activities is more pronounced for households in urban areas. However, the effect of financial literacy on the initiative in entrepreneurship is more pronounced for households in rural areas.

Regarding the findings, this study provides a reasonable explanation. Compared with rural areas, urban areas have higher economic and financial development. Highly skilled personnel are also more abundant in urban areas, which leads to more opportunities for entrepreneurship. Therefore, the relationship between financial literacy and the possibility of households’ participating in entrepreneurial activities is stronger for households in urban areas. The level of income and financial development in rural areas is low, and the degree of financing constraints on households is severe. Compared with urban households who have already participated in entrepreneurial activities, rural households who have already participated in entrepreneurial activities are more eager to quickly realize “being your own boss,” “earning more,” and “being flexible and free” through initiative in entrepreneurship.

Gender differences

Gender differences in financial literacy are common in many countries (Hung et al., 2009 ). Lusardi and Mitchell ( 2014 ) found that in the United States, 38.3% of men can correctly answer three financial questions, but only 22.5% of women can. Only in their old age can women have financial investment motivation and a strong interest in household financial management (Tran et al., 2019 ). Table 11 reports the estimated results. Combining the size of explanatory variable coefficient and the test results of inter group coefficient difference, we find that the effect of financial literacy on household participation in entrepreneurial activities is more pronounced in the male sample and the effect of financial literacy on the household initiative in entrepreneurship is more pronounced in the female sample.

This study provides a reasonable explanation for the findings. Compared with women, men tend to be more confident in their economic decision-making abilities and have a stronger interest in family financial management, hoping to realize self-worth through entrepreneurship. Therefore, financial literacy has a stronger effect on men’s participation in entrepreneurial activities. Compared with men who have made entrepreneurial choices, women are more eager to realize personal financial freedom in entrepreneurship. Therefore, financial literacy has a stronger effect on women’s initiative in entrepreneurship.

Potential mechanism analysis

Income channels.

On the one hand, the income gap or expansion of income levels has changed people’s relative status, intensified “relative exploitation” and social differentiation, and affected people’s “material craving” and jealousy, thereby helping to stimulate the enthusiasm of middle- and low-income groups to start a business (Mensah and Benedict, 2010 ). On the other hand, the most important thing at the beginning of entrepreneurship is the initial capital for family entrepreneurship, and the increase in family income provides initial capital for family entrepreneurship, thereby promoting family entrepreneurial activities (Evans and Jovanovic, 1989 ). To this end, this study explores whether financial literacy will affect household entrepreneurial activities through the channel of increasing household income and income level. This study estimates the following regression model to prove the income channel that financial literacy may increase household income and income rank:

where \({{{\rm {Income}}}}_{i}\) refers to the natural logarithm of the total household income. \(\,{{{\rm {Rank}}}}_{i}=1\) represents a high-income household. \({X1}_{i}\) and \({X2}_{i}\) represent control variables in 2015, including \({{\rm {gender}}}\) , \({{\rm {Age}}}\) , \({{{\rm {Age}}}}^{2}\) , \({{\rm {Health}}}\) , \({{\rm {Marriage}}}\) , \({{\rm {Education}}}\) , \({{\rm {RL}}}\) , \({{\rm {RN}}}\) , \({{\rm {RA}}}\) , \({{\rm {CPC}}}\) , \({{\rm {FS}}}\) , \({{\rm {Assets}}}\) , \({{\rm {NE}}}\) , \({{\rm {NC}}}\) , \({{\rm {House}}}\) , and \({{\rm {NU}}}\) . Other designs are consistent with the benchmark model ( 1 ). If \({\omega }_{1}\) and \({\omega }_{2}\) are significantly positive, then we can conclude that financial literacy may increase household income and income rank.

We use CHFS 2015 data to conduct empirical research to prove that financial literacy can increase household income and promote entrepreneurial activities. This study uses two indicators of total household income ( \({{\rm {Income}}}\) ) and income level ( \({{\rm {Rank}}}\) ) as household income variables. The total family income is a total indicator of income, and the income level is a relative indicator that reflects the relative level of family income. We divide the income level into two levels according to the total income of the sample. The top 50% of the total income level is defined as the high-income class, and the bottom 50% is defined as the low-income family. The endogenous problems found in the regression model are solved by the instrumental variable method. The estimation results are shown in Table 12 . It shows that the estimated coefficients for \({{\rm {Literacy}}}1\) and \({{\rm {Literacy}}}2\) are significantly positive, which indicates that income channels are possible. The regression model may suffer endogenous problems. Following Bucher-Koenen and Lusardi ( 2011 ) and Jappelli and Padula ( 2013 ), we select the highest educational level among parents as an instrumental variable. Columns (5)–(8) in Table 12 show that the estimated coefficients of financial literacy are significantly above 1%, which indicates that income channels are possible.

Social network channels

In China, the family social network is mainly based on blood and geography. One of the important means of communication and relationship between relatives and friends is to give gifts to one another during the Spring Festival and other holidays and weddings and funerals. We use CHFS 2015 data for empirical research and select the family’s cash and non-cash expenditures ( \({{\rm {Expenditure}}}\) ), income ( \({{\rm {Revenue}}}\) ), and total income and expenditure ( \({{\rm {Sum}}}\) ) during the Spring Festival and other holidays and weddings and funerals as the proxy variables for the social network. The endogenous problems found in the regression model are solved using the two-stage instrumental variable method. This study strives to prove the social network channel that financial literacy promotes families’ cash and non-cash expenditures, revenue, and total revenue and expenditure during holidays such as the Spring Festival and weddings and funerals. Our model is as following:

where \({{SN}}_{i}\) is \({{Expenditure}}_{i}\) , \({{revenue}}_{i}\) , or \({{Sum}}_{i}\) refer to the social network. \({{Expenditure}}_{i}\) represents the total cash and non-cash expenditures of the family during holidays such as the Spring Festival and weddings and funerals. \({{Revenue}}_{i}\) represents the total cash and non-cash revenue of the family. \({{Sum}}_{i}\) represents the total cash and non-cash expenditures and revenue of the family. \({X3}_{i}\) represents control variables in 2015, including \({gender}\) , \({Age}\) , \({{Age}}^{2}\) , \({Health}\) , \({Marriage}\) , \({Education}\) , \({RL}\) , \({RN}\) , \({RA}\) , \({CPC}\) , \({FS}\) , \({Assets}\) , \({NE}\) , \({NC}\) , \({House}\) , and \({NU}\) . Other designs are consistent with model (1). If \({\psi }_{1}\) is significantly positive, then we can conclude that financial literacy may expand social network.

The estimated results are shown in Table 13 . Following Bucher-Koenen and Lusardi ( 2011 ) and Jappelli and Padula ( 2013 ), we selected the highest educational level among parents as an instrumental variable. As can be seen from columns (1)–(6) in Panel A, \({Literacy}1\) and \({Literacy}2\) are both significantly positive at the 1% level. From columns (1)–(6) in Panel B, after controlling for endogenous factors, \({Literacy}1\) and \({Literacy}2\) are both statistically significantly positive at the 1% level. These results imply that social network channels are possible and reliable.

Risk attitude channels

We use CHFS 2015 data to conduct empirical research to prove that financial literacy can improve household risk attitudes and promote family entrepreneurial activities. We measure risk attitudes in multiple dimensions. First, we construct a comprehensive index of risk attitude. Risk preference ( \({{\rm {RL}}}\) ), risk neutrality ( \({{\rm {RN}}}\) ), and risk aversion ( \({{\rm {RA}}}\) ) are assigned values of 3, 2, and 1, respectively, to examine the effect of financial literacy on risk attitudes. Then, we divide risk attitudes into risk preference ( \({{\rm {RL}}}\) ), risk aversion ( \({{\rm {RA}}}\) ), and risk neutrality ( \({{\rm {RN}}}\) ) and generate dummy variables to examine the effect of financial literacy on these three types. Similarly, considering that there may be endogenous problems in the regression model, we use the instrumental variable method to solve the problem. This study strives to prove the risk attitude channel that financial literacy promotes risk attitude:

where \({{{\rm {Risk}}\_{\rm {attitude}}}}_{i}\) is \({{{\rm {RL}}}}_{i}\) , \({{{\rm {RN}}}}_{i,}\) or \({{{\rm {RA}}}}_{i}\) in model ( 8 ), and \({{{\rm {Risk}}}}_{i}\) is \({{\rm {Risk}}}\) in model ( 9 ). Risk preference ( \({{\rm {RL}}}\) ), risk aversion ( \({{\rm {RA}}}\) ), and risk neutrality ( \({{\rm {RN}}}\) ) are generated as dummy variables to examine the effect of financial literacy on the three types of risk attitudes. \({{{\rm {Risk}}}}_{i}\) is a comprehensive indicator of risk attitude. We assign the values of 3, 2, and 1 to respondents’ risk preference, risk neutrality, and risk aversion, respectively, and examine the effect of financial literacy on risk attitudes. \({X4}_{i}\) represents control variables in 2015, including \({{\rm {gender}}}\) , \({{\rm {Age}}}\) , \({{{\rm {Age}}}}^{2}\) , \({{\rm {Health}}}\) , \({{\rm {Marriage}}}\) , \({{\rm {Education}}}\) , \({{\rm {CPC}}}\) , \({{\rm {FS}}}\) , \({{\rm {Assets}}}\) , \({{\rm {NE}}}\) , \({{\rm {NC}}}\) , \({{\rm {House}}}\) , and \({{\rm {NU}}}\) . Other designs are consistent with the benchmark model ( 1 ). If \({\omega }_{3}\) and \({\sigma }_{1}\) are significantly positive, then we can conclude that financial literacy may improve risk attitude.

The estimation results are shown in Table 14 . Columns (1)–(8) in Panel A demonstrate that the marginal effect of financial literacy on risk appetite and risk neutrality is positive, while the marginal effect on risk aversion is significantly negative. This indicates that enhancing financial literacy has led to an increase in residents’ willingness to take risks and a reduction in their aversion to risk. Additionally, the positive marginal effect of financial literacy on risk attitudes further underscores its role in improving residents’ overall risk perception. Following Bucher-Koenen and Lusardi ( 2011 ) and Jappelli and Padula ( 2013 ), we selected the highest educational level among parents as an instrumental variable. The estimation results in columns (1)–(8) of Panel B indicate that after solving the endogenous problem, the estimated coefficients or marginal effect coefficients of \({{\rm {Literacy}}}1\) and \({{\rm {Literacy}}}2\) are significantly positive at the level of 5% and above. The above results confirm the rationality of the empirical evidence that financial literacy promotes family entrepreneurial behavior by improving residents’ risk attitudes.

Further analysis: the role of financial education

The aforementioned findings substantiate the significant impact of financial literacy on family entrepreneurial behavior, thereby underscoring the importance of delving deeper into strategies aimed at enhancing residents’ financial literacy within the context of family entrepreneurship. According to Lusardi and Mitchell ( 2011 ), implementing financial education programs emerges as the most effective means to bolster residents’ financial literacy. Can financial education truly serve as a catalyst for elevating residents’ financial literacy? Furthermore, can it effectively amplify the influence of financial literacy on residents’ entrepreneurial endeavors? Investigating the intricate interplay between financial literacy, financial education, and familial entrepreneurial conduct is paramount.

In initial exploration, it becomes imperative to scrutinize the correlation between financial education and the level of financial literacy. To operationalize financial education, a binary variable is constructed, wherein a value of 1 denotes participation in coursework related to economics or finance, while a value of 0 indicates otherwise. Subsequently, the variables Literacy1 or Literacy2 are introduced to replace the interpreted variable, and the variable Learn stands in place of the interpreted variable. The control variables adhere to the framework outlined in Model (1). The estimated outcomes are presented in Table 15 . Regardless of the method employed to measure financial literacy, the estimated coefficient of financial education ( Learn ) consistently demonstrates a statistically significant positive impact at the 1% significance level, suggesting that engagement in financial education initiatives can indeed enhance residents’ financial literacy levels. Additionally, three PSM methodologies are employed to scrutinize the influence of financial education on financial literacy. The estimated results, as detailed in Table 16 , consistently reveal positive and statistically significant ATT values, thereby affirming the robustness of the aforementioned findings. These robustness checks further underscore the foundational assertion, highlighting the pivotal role of financial education in enriching family financial literacy.

Moving forward, our investigation extends to assessing whether financial education can effectively augment the influence of financial literacy on family entrepreneurial behavior. To address this inquiry, we construct an interaction term, denoted as Literacy × Learn, which captures the combined impact of financial education and financial literacy. This interaction term is incorporated into the analysis. Table 17 presents the estimated results. Irrespective of the method employed to measure financial literacy, the estimated coefficient of Literacy × Learn consistently displays a statistically significant positive association. This signifies that financial education effectively amplifies the impact of financial literacy on family entrepreneurial behavior.

An intriguing discovery emerges from our analysis: the estimated marginal effect coefficient for the interaction terms of Literacy1 × Learn or Literacy2 × Learn is notably positive, surpassing the coefficient of financial literacy alone. This observation suggests a close relationship between the impact of financial literacy on entrepreneurial behavior and individuals’ exposure to financial education. Consequently, our study substantiates that financial education serves as a moderating variable in shaping the influence of financial literacy on residents’ entrepreneurial behavior, effectively augmenting its impact. In practical terms, nationwide financial education initiatives and inclusive activities led by the People’s Bank of China, in collaboration with other financial institutions, have yielded noteworthy results over time. However, the current lack of enthusiasm and initiative among residents toward learning may hinder their engagement with financial education programs. Yet, with the proliferation of financial education efforts, this apathy is expected to wane, paving the way for increased attention and participation in financial education and training endeavors.

Theoretical implications

Our study draws upon human capital theory and modern entrepreneurship theory to empirically analyze the present, long-term, and evolving effects of financial literacy on household entrepreneurial behaviors, utilizing data from the CHFS in 2015 and 2017. The findings reveal that financial literacy exerts immediate, persistent, and evolving positive effects on households’ engagement in entrepreneurial activities and their propensity towards entrepreneurship. Addressing the endogeneity of the regression model, the results from the two-stage regression analysis corroborate the primary regression findings. Heterogeneity analysis highlights significant disparities between urban and rural areas as well as gender differences in how financial literacy influences household entrepreneurial behavior. Moreover, this study validates three potential mechanisms: income, social network, and risk attitude channels. We observe that financial literacy significantly enhances household income, broadens social networks, and fosters improved risk attitudes. Furthermore, our analysis indicates that financial education reinforces the impact of financial literacy on entrepreneurial behavior. These research findings carry significant theoretical implications, enriching both human capital theory and modern entrepreneurship theory.

Practical implications

This research carries significant implications for policymakers and stakeholders alike. Firstly, governments should recognize the pivotal role of financial literacy and embark on comprehensive initiatives to promote it through various channels, including television programs, radio broadcasts, informational brochures, training sessions, and specialized lectures. Establishing a sustained mechanism for the dissemination of financial literacy is crucial for enhancing the financial acumen of our nation’s populace. Secondly, special emphasis should be placed on promoting financial literacy in rural areas and among women. Collaborative efforts with financial institutions can facilitate targeted and tailored financial education projects aimed at these demographics, thereby fostering inclusivity and empowerment. By addressing the disparities in financial literacy, governments can pave the way for more equitable access to financial resources and opportunities. Thirdly, governments should actively promote financial education activities, including entrepreneurship training programs. These initiatives can mitigate the inhibitory effects of low financial literacy on entrepreneurial pursuits and enhance the management capabilities of entrepreneurs. By equipping individuals with the necessary skills and knowledge, such programs contribute to the resilience and dynamism of China’s financial market and stimulate growth in the employment landscape. In conclusion, concerted efforts to promote financial literacy and education are essential for advancing economic prosperity, fostering entrepreneurship, and ensuring inclusive development. By prioritizing these initiatives, policymakers can lay the foundation for a more resilient and prosperous future for China’s economy and society.

Future research and limitations

While our study has yielded significant insights, there are several avenues that merit further exploration in future research endeavors. Firstly, the complex relationship between cultural diversity and entrepreneurial behavior warrants deeper investigation. Unfortunately, due to the lack of detailed data on cultural diversity at the market segment level, this aspect remains largely unexplored in our study. Future research could delve into this aspect to better understand how cultural factors influence entrepreneurial decisions. Secondly, our analysis is constrained by the utilization of cross-sectional data from 2015 and 2017. Access to longitudinal data covering a broader timeframe could provide more nuanced insights and facilitate stronger conclusions. Therefore, future studies could benefit from employing larger datasets and extended panel data to comprehensively analyze the dynamics of the relationship between financial literacy and entrepreneurial behavior over time. Thirdly, the simplicity of the questionnaire used in our study may limit the depth of understanding regarding residents’ entrepreneurial behavior. Future research could address this limitation by employing more sophisticated questionnaires developed through an interdisciplinary approach, incorporating insights from psychology and other relevant fields. This holistic approach may offer a more nuanced understanding of residents’ entrepreneurial behavior, thereby enhancing the validity and reliability of the findings.

Furthermore, with the advent of the digital age, integrating elements of digitization or digital technology into academic research has become imperative. In our future research endeavors, we aim to expand our focus in several key areas. Firstly, we will explore the determinants of digital entrepreneurial behavior, examining how digital technologies influence entrepreneurial decisions and strategies. Secondly, we will emphasize the importance of digital financial literacy in shaping entrepreneurial behavior, considering how individuals’ proficiency in digital financial tools and platforms impacts their entrepreneurial activities. Lastly, we will endeavor to leverage digital technology to enhance causal identification in empirical analysis, employing innovative methodologies to better understand the mechanisms underlying the relationship between financial literacy and entrepreneurial behavior in the digital era.

Data availability

The datasets generated during and/or analyzed during the current study are available in the Harvard Dataverse repository: https://doi.org/10.7910/DVN/NRZ1K1 .

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We thank the support provided by the STU Scientific Research Initiation Grant [Grant No. STF24004T] and the National Natural Science Foundation of China [Grant No. 72203047].

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Conceptualization: SX and KJ; methodology: SX and KJ; resources: KJ; data curation: KJ; data collection and data analysis: SX and KJ; writing—original draft preparation: SX and KJ; writing—review and editing: SX and KJ; supervision: SX; project administration: KJ; funding acquisition: KJ. All authors have read and agreed to the published version of the manuscript.

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Xu, S., Jiang, K. Knowledge creates value: the role of financial literacy in entrepreneurial behavior. Humanit Soc Sci Commun 11 , 679 (2024). https://doi.org/10.1057/s41599-024-03201-3

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DOI : https://doi.org/10.1057/s41599-024-03201-3

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