Having the right friends might mean a more secure financial future.
Bradley Cannon, assistant professor of finance within the School of Management at Binghamton University, outlines the link.
Brad Cannon, assistant professor of finance at Binghamton University
Dr. Cannon’s research interests include behavioral finance, household finance, investments and financial technology.
The study, titled “Friends with Benefits: Social Capital and Household Financial Behavior,” was published by the National Bureau of Economic Research, and it was co-authored by researchers from the University of Southern California’s Marshall School of Business and Baylor University’s Hankamer School of Business.
Dr. Cannon has a Bachelor of Science and a Master of Science from Utah State University and a PhD from Ohio State University.
Having the ‘Right’ Friends May Hold the Secret to Building Wealth
Friendship and money are often compared to oil and water: they don’t mix. But there might be a need to rethink that.
According to new research by myself and colleagues at USC and Baylor University, having wealthy people in your social network can significantly boost the likelihood that you’ll participate in stock markets and savings plans.
Many U.S. households, particularly lower-income families, do not own stocks. And given that the total return to the U.S. stock market since 1980 has been over 12,000%, this creates a disparity in wealth for those who participate and those who don’t.
In our study, we looked at whether social capital was related to savings decisions. Social capital is the value that comes from being in a group or having dense social networks. With Facebook friendship data, we measured social capital for each county in the US. We combined this with the IRS’s interest and dividend income tax return data, which allowed us to determine if a person had a bank savings account or owned stocks.
We then compared the savings behavior of counties where people could connect with others of higher socioeconomic status to counties with less potential for such interactions.
In counties where friendships with prosperous individuals are more common, investment and savings tend to be higher. For every 10% increase in friends of high socioeconomic status, there was a nearly 3% greater chance of stock-market participation and a 5% increase in the chance they saved money.
Of course, making wealthy friends alone does not guarantee you’ll invest or save more. But this suggests that creating more opportunities in communities to interact socially with wealthy people or people who have experience investing could benefit people from those interactions to save more.
Read More:
BingUNews: June 10, 2024
Want to make more money? You can start by spending time with the right friends, new research reveals
School of Management Assistant Professor Brad Cannon co-authors study examining how social interactions affect choices about personal finances
Leave a Reply