Social Ties and the Demand for Financial Services

63 Pages Posted: 25 Aug 2017

Date Written: June 16, 2017

Abstract

This paper studies the importance of social interactions for the adoption of financial services among young adults. Specifically, we investigate whether, how, and why financial decisions among interacting agents are correlated. We exploit a unique dataset of friendship networks in the United States and a novel estimation strategy that accounts for possibly endogenous network formation. We find that not all social contacts are equally important: only long-lasting relationships influence financial decisions. Moreover, this peer influence exists only in cohesive social structures. This evidence is consistent with an important role of trust in financial decisions. When agents consider whether or not to adopt a financial instrument, they face a risk and may place greater value on information coming from agents they trust. These results can help explain the importance of face-to-face social contacts for financial decisions.

Keywords: financial market participation, financial literacy, social interactions, trust, network formation, endogeneity, Bayesian estimation

JEL Classification: C11, C31, D1, D14, D81, D85, E45, G11, M31

Suggested Citation

Patacchini, Eleonora and Rainone, Edoardo, Social Ties and the Demand for Financial Services (June 16, 2017). Bank of Italy Temi di Discussione (Working Paper) No. 1115, Available at SSRN: https://ssrn.com/abstract=3025467 or http://dx.doi.org/10.2139/ssrn.3025467

Eleonora Patacchini

Cornell University ( email )

Ithaca, NY 14853
United States

Edoardo Rainone (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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