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Conference Paper BHPS-2005 Conference: the 2005 British Household Panel Survey Research Conference, 30 June -2 July 2005, Colchester, UK

The role of network resource in households' saving decisions

Authors

Publication date

2005

Abstract

In this paper I study the resources owned by individuals thanks to their interpersonal
relationships: in particular I focus on the role of these contacts in households’ saving
decisions. Economic literature has understood the role of mechanisms related to
interpersonal relationships in studying how markets work: I would extend this
analysis to the problem of income uncertainty and precautionary savings. I argue that
the different kinds of help given to an individual from its relatives and friends could
be considered as an alternative source of wealth and then, following permanent
income theory, it can reduce precautionary saving. I do not want to consider social
network as a determinant of income but as a component of wealth and I want to
extend the study also to the role of friendship networks in addition to family ties. For
these extensions in addition to the most common measures of social networks in
economic literature I quantify also the strength of the relationships, using the
frequency of contacts with relatives and friends reported by individuals. This last
measure, more frequent in sociological research than in economics literature, is
interesting from an economic perspective: an individual has to spend time in creating
or maintaining relationships to accumulate the contacts through she reaches the social
resources, like the investment in other sources of wealth. I use data, even the data
about relationships, at individual level because I am interested in the individual
amount of these resource to study the individual wellbeing. I used waves from 7 to 11
(1997-2001) of British Household Panel Survey to perform tobit random effect
regressions. I consider households because the social resources owned by individuals
are relevant also for their whole household. I found that the measures of social
relationships are significant but that, using the whole sample of individuals, they raise
savings. Social resources are sometimes viewed as “the capital of the poor” for the
LDC, then I guess that this fact would be true also in developed countries. If the
sample is divided by quintiles, the indexes of social relationships are negatively
correlated with savings for the lowest quintile: they seem to act as an alternative
source of insurance substituting precautionary saving. Another regression includes
worry about household future financial situation: the measure of this fear is, usually
positively associated with savings, while it is interacted with the index of social
relationships, shows a negative relation with savings.
JEL classification: D91, D12 ; Z13; E21
Keywords: social relationships, precautionary savings, insurance

Subjects

Social Networks, Savings And Assets, and Household Economics

Links

http://www.iser.essex.ac.uk/bhps/2005/download.php

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