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Household Finances and Social Interaction: Bayesian Analysis of Household Panel Data

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  • Sarah Brown
  • Pulak Ghosh
  • Karl Taylor

Abstract

We investigate the relationship between social interaction and household finances using data from the British Household Panel Survey. We contribute to the existing literature by exploring the relationship between a wide range of aspects of household finances and social interaction, rather than focusing one particular facet of household finances, such as the holding of stocks and shares. To be specific, we develop a Bayesian statistical framework to simultaneously explore both sides of the household balance sheet, i.e. liabilities and assets. Additionally, we allow the influence of social interaction on household finances to be time dependent, which enables us to model the effects of social interaction from a dynamic perspective. We also develop a two-part model to jointly investigate the influence of social interaction on the amount of different types of debt and financial assets held conditional on holding the different types of debt and assets. The analysis suggests that the effect of social interaction is not just restricted to share ownership, with positive effects found for both assets and liabilities. Our analysis also suggests that social interaction is associated with households holding larger amounts of both debt (unsecured and secured) and assets (property and non-housing), even after conditioning on the probability of possessing liabilities and/or assets.
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  • Sarah Brown & Pulak Ghosh & Karl Taylor, 2016. "Household Finances and Social Interaction: Bayesian Analysis of Household Panel Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(3), pages 467-488, September.
    • Handle: RePEc:bla:revinw:v:62:y:2016:i:3:p:467-488
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    Cited by:

    1. Yann Algan & Pierre Cahuc, 2010. "Inherited Trust and Growth," American Economic Review, American Economic Association, vol. 100(5), pages 2060-2092, December.
    2. Rey-Ares, Lucía & Fernández-López, Sara & Castro-González, Sandra & Rodeiro-Pazos, David, 2021. "Does self-control constitute a driver of millennials’ financial behaviors and attitudes?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 93(C).
    3. repec:hal:spmain:info:hdl:2441/432sbils8u9t7qa99cii5psht1 is not listed on IDEAS
    4. Mariya Hake & Philipp Poyntner, 2022. "Keeping Up With the Novaks? Income Distribution as a Determinant of Household Debt in CESEE," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(S1), pages 224-260, April.
    5. Brown, Sarah & Ghosh, Pulak & Pareek, Bhuvanesh & Taylor, Karl, 2017. "Financial Hardship and Saving Behaviour: Bayesian Analysis of British Panel Data," IZA Discussion Papers 10910, Institute of Labor Economics (IZA).
    6. Brown, Sarah & Ghosh, Pulak & Pareek, Bhuvanesh & Taylor, Karl, 2021. "The protective role of saving: Bayesian analysis of British panel data," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 57-72.
    7. Shakeba Foster, 2023. "Income inequality and household debt: Examining the impact of relative income on formal and informal debt in South Africa," WIDER Working Paper Series wp-2023-37, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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