Friends with Benefits: Social Capital and Household Financial Behavior

Abstract

Using friendship data from Facebook, we find that among three aspects of social capital, Economic Connectedness - the fraction of one's social network with high income, has the strongest and most robust relationship with stock market and saving participation. One standard-deviation greater Economic Connectedness is associated with 10.6% greater stock market participation and 9.2% greater saving participation. Evidence from non-local friendships supports a causal link between household financial behavior and the income of one's friends. Our results indicate that the effect of Economic Connectedness on participation derives from opportunities to interact with high-SES individuals rather than from class-based friending propensities.

Keywords

Tags of Social Finance