Friends with Benefits: Social Capital and Household Financial Behavior

Brad Cannon, David Hirshleifer and Joshua Thornton

No 32186, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using friendship data from Facebook, we study the effects of three aspects of social capital on household financial behavior. We find that the most important measure of social capital in explaining stock market and saving participation is Economic Connectedness, defined as the fraction of one’s social network with high socioeconomic status. One standard-deviation greater Economic Connectedness is associated with 2.9% greater stock market participation and 5.0% greater saving participation. Compared to Cohesiveness or Civic Engagement, Economic Connectedness explains more than 6 times the variation in stock market participation and more than 4 times the variation in saving participation. Using data on nonlocal friendships, we provide evidence supporting a causal link between household financial behavior and the income of one's friends. Furthermore, we provide evidence that greater opportunities for social interaction with wealthy individuals is associated with increased stock market and saving participation.

JEL-codes: D14 D15 D63 G4 G40 G41 G5 G50 G51 I3 I30 I31 I38 O16 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-net and nep-soc
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