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Do social networks affect household financial vulnerability? Evidence from China

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  • Chen, Bo
  • Zeng, Ning
  • Tam, Kwo Ping

Abstract

Using data from China Family Panel Studies (CFPS) in 2018, we first examine the impact of social networks on household financial vulnerability and find that social networks significantly reduce the probability of household financial vulnerability. In particular, we find that there is a noticeably larger mitigating effect of social networks on household financial vulnerability among households with higher indebtedness. We also find that social networks can reduce household financial vulnerability, regardless of whether households have commercial insurance or not. Further, we investigate how social networks affect household financial vulnerability. Evidence suggests that social networks can mitigate household financial vulnerability by encouraging informal debt from family or friends and improving financial literacy. Our empirical results are still robust when we address the potential endogeneity problem arising from social networks.

Suggested Citation

  • Chen, Bo & Zeng, Ning & Tam, Kwo Ping, 2024. "Do social networks affect household financial vulnerability? Evidence from China," Finance Research Letters, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:finlet:v:59:y:2024:i:c:s1544612323010826
    DOI: 10.1016/j.frl.2023.104710
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    More about this item

    Keywords

    Financial vulnerability; Financial literacy; Household finance; Social networks; Informal risk sharing;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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