Under the influence of mental account, the compensation for demolition encourages more willingness for families to participate in financial market investment, so housing demolition would improve significantly the participation of families in financial market. Based on the data from China Family Financial Investigation (CHIP2013) and China Family Tracking Survey (CFPS2018),the study employs instrumental variable method to empirically test the effects of housing demolition on household participation of financial markets. The result shows that housing demolition will, to a certain extent, promote household participation of financial market, which is more remarkable among households with lower consumer spending and higher remaining sums of financial assets. At the same time, the mediating effect test results show that household disposable income plays a partial mediating role in the process of housing demolition promoting household participation of financial market, which means not only should the households be on guard against the irrational behavior of excessive participation in the financial market, the government and financial institutions should also organize and provide different forms of financial education to improve their financial literacy, so as to prevent the tragedy of returning to poverty from demolition.