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Being Social

The social environment you are in clearly affects your propensity for investing. However, how much the social norms of your peer group affect you may depend on you. More precisely, it may depend on how social you are. Some people are not very social—they just don't spend much time around other people. Non-social people rarely interact with neighbors or put themselves in social settings (like a bridge club, church, or softball teams). Social people enjoy interacting with others and seek opportunities to do so.

Social people are more likely than non-social people to learn about investing because they are frequently exposed to a more social environment. As a consequence, highly social people are more likely to invest in the stock market. As previously mentioned, nearly 49% of American households invest in the stock market. However, households that are more socially active have higher participation rates. Three economists measured this effect by surveying 7,500 households[3] in the Health and Retirement Study of Households (a federally sponsored survey) that indicated they either interacted with their neighbors or attended church, and were identified as being social. To determine the impact of being social on stock market participation, the economists had to account for other important factors, such as wealth, race, and education. Given these controls, they found that social households were 4% more likely to invest in the stock market. Those social households with greater wealth and education levels were 8% more likely to invest, all else being equal. Of course, being social mostly helps when you are in an environment where others are investing. Social households that live in high participation areas are 9% more likely to invest in the stock market if they are socially active.


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