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Household Finances and Social Interaction

  • Sarah Brown


    (Department of Economics, The University of Sheffield)

  • Karl Taylor


    (Department of Economics, The University of Sheffield)

In this paper, we investigate the relationship between social interaction and household finances using data from the British Household Panel Survey. We explore how social interaction influences the probability of holding different types of unsecured debt and assets, as well as how social interaction influences the levels of unsecured debt, financial assets and net worth held. Our findings suggest that social interaction has a positive influence upon the types of financial assets held, which is particularly pronounced for the holding of stocks and shares. Social interaction is also found to influence the amount of financial assets held as well as the level of household net worth. In contrast, there appears to be no clear relationship between social interaction and the holding of unsecured debt, suggesting that social interaction has distinct effects across different parts of the household balance sheet. When we instrument the measure of social interaction, our results once again endorse the finding that social interaction impacts differently on debt and asset holding. Interestingly, in this case, our findings support an inverse association between debt and social interaction.

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Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2012007.

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Length: 32 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:shf:wpaper:2012007
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  1. Jeffrey R. Brown & Zoran Ivkovich & Paul A. Smith & Scott Weisbenner, 2007. "Neighbors Matter: Causal Community Effects and Stock Market Participation," NBER Working Papers 13168, National Bureau of Economic Research, Inc.
  2. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2004. "Social Interaction and Stock-Market Participation," Journal of Finance, American Finance Association, vol. 59(1), pages 137-163, 02.
  3. Dimitris Christelis & Tullio Jappelli & Mario Padula, 2008. "Cognitive Abilities and Portfolio Choice," Working Papers 2008_19, Department of Economics, University of Venice "Ca' Foscari".
  4. Agarwal, Sumit & Chomsisengphet, Souphala & Liu, Chunlin, 2011. "Consumer bankruptcy and default: The role of individual social capital," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 632-650, August.
  5. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
  6. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
  7. Sarah Brown & Karl Taylor, 2008. "Household debt and financial assets: evidence from Germany, Great Britain and the USA," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 615-643.
  8. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
  9. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
  10. Brown, Sarah & Taylor, Karl, 2009. "Social interaction and children's academic test scores: Evidence from the National Child Development Study," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 563-574, August.
  11. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769, 01-2013.
  12. John Ermisch & Diego Gambetta & Heather Laurie & Thomas Siedler & S. C. Noah Uhrig, 2009. "Measuring people's trust," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 172(4), pages 749-769.
  13. Edward L. Glaeser & David Laibson & Bruce Sacerdote, 2002. "An Economic Approach to Social Capital," Economic Journal, Royal Economic Society, vol. 112(483), pages 437-458, November.
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