Emotional Support and Financial Distress

Abstract

This paper is the first to explore emotional support as an important determinant of household financial outcomes. Using microdata from the U.S. and Australia, I document that individuals who feel emotionally supported are less likely to experience financial distress. This relationship is not confounded by non-emotional aspects of social support and is confirmed by between-siblings and within-individual analyses. Further investigation suggests emotional support helps to overcome psychological barriers that impede individuals from taking precautions against adverse shocks. Moreover, when such shocks occur, those with strong emotional support can better cope with the adversity as emotional support boosts their confidence.

Keywords: emotional support, financial distress, social networks

JEL Classification: D91, G4, G5