Friends with Benefits: Social Capital and Household Financial Behavior

Using friendship data from Facebook, we find that among three aspects of social capital, Economic Connectedness—the extent of cross-SES friendships in a network—has the strongest relationship with stock market and saving participation for low-income households. One standard-deviation greater Economic Connectedness is associated with 3.5 percentage points greater stock market participation and 3.6 percentage points greater saving participation. Evidence from childhood friendships and an instrumental variables approach using full-service chain restaurants suggests that the relationship is causal. In exploring the determinants of Economic Connectedness, we find that its association with participation derives from exposure to wealthy individuals rather than from class-based friending propensities. We also provide evidence suggesting that Economic Connectedness reduces setup costs, possibly psychic, of participation.