Do social networks affect household financial vulnerability? Evidence from China

Bo Chen, Ning Zeng and Kwo Ping Tam

Finance Research Letters, 2024, vol. 59, issue C

Abstract: Using data from China Family Panel Studies (CFPS) in 2018, we first examine the impact of social networks on household financial vulnerability and find that social networks significantly reduce the probability of household financial vulnerability. In particular, we find that there is a noticeably larger mitigating effect of social networks on household financial vulnerability among households with higher indebtedness. We also find that social networks can reduce household financial vulnerability, regardless of whether households have commercial insurance or not. Further, we investigate how social networks affect household financial vulnerability. Evidence suggests that social networks can mitigate household financial vulnerability by encouraging informal debt from family or friends and improving financial literacy. Our empirical results are still robust when we address the potential endogeneity problem arising from social networks.

Keywords: Financial vulnerability; Financial literacy; Household finance; Social networks; Informal risk sharing (search for similar items in EconPapers)
JEL-codes: D10 D14 G51 G53 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323010826

DOI: 10.1016/j.frl.2023.104710

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