Social Network and Financial Risk Tolerance Among Investors Nearing and During Retirement

Abstract

This study examined the relationship between social networks and one’s tendency to invest in risky assets. We used cross-sectional data from the Survey of Health, Aging and Retirement in Europe (SHARE), including a measure of financial risk preference and detailed information on respondents’ most meaningful social ties. We found that social network is a relevant predictor of the willingness to invest in risky assets. The size of the social network positively correlates with stock ownership, and the components of the network play an important role in investment decisions. Moreover, the propensity to invest in stocks is positively associated with the proportion of the network that is comprised of spouse and friends. However, it is negatively associated with the proportion of the network that is comprised by one’s children.

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Notes

  1. 1.

    In this study, financial assets that were taken into consideration are (1) money in bank accounts; (2) mutual funds; (3) retirement account.

  2. 2.

    More detailed information on the fourth wave of SHARE can be found in Börsch-Supan (2013).

  3. 3.

    The distribution of the reasons for the elimination of observations is the following: Criterion 1—9641 respondents did not provide all the necessary information for this study. Criterion 2—we eliminated 4514 observations. Criterion 3 required 5545 eliminations.

  4. 4.

    Gross financial wealth is calculated as the total sum of money that is managed or invested in bank accounts, government or corporate bonds, stocks, mutual funds, retirement accounts, contractual savings for housing and life insurance policies.

  5. 5.

    In the SHARE survey, financial questions are directed to the member of the couple who can provide accurate details, which are known to the responder only if he/she is an active decision maker. Hence, it can be assumed that the financial respondent represents his or her preferences.

  6. 6.

    In the survey formal helpers refers to the formal care providers (i.e., home aids, physicians, and social workers).

  7. 7.

    In this study we focused on the five relationship types: spouse, children, friends, other family members, and others. For each type we calculated its proportion in an individual’s social network. This ratio was used as an indicator regarding people who have a most influence on financial decisions of the respondent.

  8. 8.

    These results were verified by preforming a t-test that specifies the marital status of the respondent: We compare the share of the financial wealth that is invested in the risk if the respondents are married women or married men. According to the results, married women reported that they invested a smaller share of financial wealth (< 5%) than married men (8.5%). These results are similar to the results if considering the entire population.

  9. 9.

    The proportion is rounded to one decimal place.

  10. 10.

    In this section, we detail results of total stock holding.

  11. 11.

    In this paper, when mentioning the coefficient of an explanatory variable we are referring to B, the unstandardized coefficient.

  12. 12.

    The association of friends in the social network with the decision whether to invest in risky assets is significant only for women.

  13. 13.

    It is possible that women tend to rely more than men on assistance from children.

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Correspondence to Ela Ostrovsky-Berman.

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Ostrovsky-Berman, E., Litwin, H. Social Network and Financial Risk Tolerance Among Investors Nearing and During Retirement. J Fam Econ Iss 40, 237–249 (2019). https://doi.org/10.1007/s10834-018-9592-5

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Keywords

  • Social network
  • Stockholding
  • Portfolio choices
  • Risk tolerance
  • SHARE