Social Interaction and Household Consumption Upgrading: The Roles of Financial Literacy and Risk Sharing
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Social Interaction and Household Consumption Upgrading: The Roles of Financial Literacy and Risk Sharing

Xuan Lyu 1*
1 The University of Hong Kong
*Corresponding author: lyuxuan2022@outlook.com
Published on 20 August 2025
Journal Cover
AEMPS Vol.211
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-80590-321-5
ISBN (Online): 978-1-80590-322-2
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Abstract

Based on data from the 2019 China Household Finance Survey (CHFS), this paper systematically investigates the impact of social interaction on household consumption upgrading and its underlying mechanisms. The findings reveal that social interaction not only significantly increases total household consumption expenditure but also promotes a higher proportion of hedonic consumption. These conclusions remain robust across a series of robustness checks. Mechanism analysis suggests that social interaction operates primarily through two channels: first, the financial literacy accumulation effect, wherein information sharing and cognitive improvement lead to optimized household financial decisions; and second, the risk-sharing effect, which alleviates future uncertainties and unleashes consumption potential by encouraging participation in commercial insurance. Heterogeneity analysis further shows that the positive impact of social interaction is more pronounced in eastern regions and among rural households. This research contributes to the understanding of how informal institutions affect microeconomic behavior and offers policy insights into enhancing financial literacy, expanding the coverage of risk management tools such as insurance, and promoting household consumption upgrading and domestic demand expansion.

Keywords:

social interaction, consumption upgrading, financial decision-making

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Lyu,X. (2025). Social Interaction and Household Consumption Upgrading: The Roles of Financial Literacy and Risk Sharing. Advances in Economics, Management and Political Sciences,211,1-12.

References

[1]. Jiang, X. (2022). Informal institutions and the issue of relative poverty in rural households (Doctoral dissertation, Central University of Finance and Economics).

[2]. Song, K., Yu, S., & Yang, Y. (2022). Revisiting and reviewing consumption upgrading: A new theoretical analytical framework. Economic Horizons, 12, 97–103.

[3]. Qin, X. (2020). The impact of social interaction on family consumption structure (Master’s thesis, Shanghai University of Finance and Economics). https: //doi.org/10.27296/d.cnki.gshcu.2020.001563

[4]. He, Y., She, C., & Wang, Y. (2021). The impact of social interaction on elderly consumption upgrading: Also discussing the economic driving effect of square dancing. Economic Research Journal, 47(6), 15.

[5]. Zhou, L. (2024). The impact of internet use and social interaction on family offline consumption. China Price, 4, 88–93.

[6]. Wu, Y., Nie, J., & Bai, L. (2023). The impact of social interaction on the purchase of commercial pension insurance and its heterogeneity. Journal of Northwest University: Philosophy and Social Sciences Edition, 53(1), 174–184.

[7]. Li, X., et al. (2023). Financial knowledge, financial market participation, and consumption upgrading. Financial Forum, 28(12), 28–42+53.

[8]. Li, D., Ding, J., & Ma, S. (2019). The impact of social interaction on household commercial insurance participation: Empirical evidence from the China Household Finance Survey (CHFS). Financial Research, (7), 96–114.

[9]. Durlauf, S. N. (2004). Neighborhood effects. In J. V. Henderson & J.-F. Thisse (Eds.), Handbook of regional and urban economics (Vol. 4, pp. 2173–2242). Elsevier.

[10]. Hong, H., Kubik, J. D., & Stein, J. C. (2004). Social interaction and stock-market participation. The Journal of Finance, 59(1), 137–163.

[11]. Wang, L. (2023). The impact of social interaction on the effectiveness of household financial asset portfolios. China Price, (6), 90–93.

[12]. Zhu, T., Xie, T., & Wang, Y. (2016). Cognitive ability, social interaction, and household financial asset allocation. Finance and Economics, (11), 47–55. https: //doi.org/10.13762/j.cnki.cjlc.2016.11.003

[13]. Sun, H., & Zhang, R. (2023). The transmission mechanism and effect of social interaction on household commercial insurance allocation. Journal of Shenzhen University (Humanities and Social Sciences Edition), 40(3), 72–82.

[14]. Wang, H., & Tang, Y. (2022). Social interaction, network information, and household commercial insurance participation. Macroeconomic Research, (6), 93–111. https: //doi.org/10.16304/j.cnki.11-3952/f.2022.06.009

[15]. Du, Z., Guo, J., & Zhang, L. (2013). Guanxi and income inequality. Southwestern University of Finance and Economics Working Paper.

References

[1]. Jiang, X. (2022). Informal institutions and the issue of relative poverty in rural households (Doctoral dissertation, Central University of Finance and Economics).

[2]. Song, K., Yu, S., & Yang, Y. (2022). Revisiting and reviewing consumption upgrading: A new theoretical analytical framework. Economic Horizons, 12, 97–103.

[3]. Qin, X. (2020). The impact of social interaction on family consumption structure (Master’s thesis, Shanghai University of Finance and Economics). https: //doi.org/10.27296/d.cnki.gshcu.2020.001563

[4]. He, Y., She, C., & Wang, Y. (2021). The impact of social interaction on elderly consumption upgrading: Also discussing the economic driving effect of square dancing. Economic Research Journal, 47(6), 15.

[5]. Zhou, L. (2024). The impact of internet use and social interaction on family offline consumption. China Price, 4, 88–93.

[6]. Wu, Y., Nie, J., & Bai, L. (2023). The impact of social interaction on the purchase of commercial pension insurance and its heterogeneity. Journal of Northwest University: Philosophy and Social Sciences Edition, 53(1), 174–184.

[7]. Li, X., et al. (2023). Financial knowledge, financial market participation, and consumption upgrading. Financial Forum, 28(12), 28–42+53.

[8]. Li, D., Ding, J., & Ma, S. (2019). The impact of social interaction on household commercial insurance participation: Empirical evidence from the China Household Finance Survey (CHFS). Financial Research, (7), 96–114.

[9]. Durlauf, S. N. (2004). Neighborhood effects. In J. V. Henderson & J.-F. Thisse (Eds.), Handbook of regional and urban economics (Vol. 4, pp. 2173–2242). Elsevier.

[10]. Hong, H., Kubik, J. D., & Stein, J. C. (2004). Social interaction and stock-market participation. The Journal of Finance, 59(1), 137–163.

[11]. Wang, L. (2023). The impact of social interaction on the effectiveness of household financial asset portfolios. China Price, (6), 90–93.

[12]. Zhu, T., Xie, T., & Wang, Y. (2016). Cognitive ability, social interaction, and household financial asset allocation. Finance and Economics, (11), 47–55. https: //doi.org/10.13762/j.cnki.cjlc.2016.11.003

[13]. Sun, H., & Zhang, R. (2023). The transmission mechanism and effect of social interaction on household commercial insurance allocation. Journal of Shenzhen University (Humanities and Social Sciences Edition), 40(3), 72–82.

[14]. Wang, H., & Tang, Y. (2022). Social interaction, network information, and household commercial insurance participation. Macroeconomic Research, (6), 93–111. https: //doi.org/10.16304/j.cnki.11-3952/f.2022.06.009

[15]. Du, Z., Guo, J., & Zhang, L. (2013). Guanxi and income inequality. Southwestern University of Finance and Economics Working Paper.

Cite this article

Lyu,X. (2025). Social Interaction and Household Consumption Upgrading: The Roles of Financial Literacy and Risk Sharing. Advances in Economics, Management and Political Sciences,211,1-12.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

About volume

Volume title: Proceedings of ICEMGD 2025 Symposium: Resilient Business Strategies in Global Markets

ISBN: 978-1-80590-321-5(Print) / 978-1-80590-322-2(Online)
Editor: Florian Marcel Nuţă Nuţă, Li Chai
Conference website: https://2025.icemgd.org/CAU.html
Conference date: 20 September 2025
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.211
ISSN: 2754-1169(Print) / 2754-1177(Online)

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