Abstract: Increasing the income of urban and rural households is a key to the victory of realizing the overall well-off. While financial literacy is an important factor affecting the income of urban and rural households. Based on the 2014 China Family Panel Studies (CFPS) data, this paper analyzed the financial literacy index of households by the 2SLS model and explored the influences of financial literacy on household income and its structure. Results show that financial literacy of Chinese residents is at the moderate to low level, and the income of most households is at the middle level. The mean value of financial literacy of Chinese residents and the total income of households are both on the rise. This research also finds that financial literacy has a positive effect on total household income, wage income and property income, but a negative effect on transfer income. After further subdividing household transfer income and property income, the modeling results show that financial literacy has a significant negative effect on relief transfer income and a significant positive effect on pension income. In addition, financial literacy has a significant positive impact on both family investment income and non-investment income. However, financial literacy restricts the increase of family investment income through the influence of rural household registration and the age of residents. Therefore, the government should develop general financial education to improve residents’ financial literacy and strengthen financial legislation and supervision to maintain a good financial order.