How social structure influences the way people share money

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People around the globe often depend on informal financial arrangements, borrowing and lending money through social networks. Understanding this sheds light on local economies and helps fight poverty.

Now, a study co-authored by an MIT economist illuminates a striking case of informal finance: In East Africa, money moves in very different patterns depending on whether local societies are structured around family units or age-based groups.

That is, while much of the world uses the extended family as a basic social unit, hundreds of millions of people live in societies with stronger age-based cohorts. In these cases, people are initiated into adulthood together and maintain closer social ties with each other than with extended family. That affects their finances, too.

"We found there are major impacts in that social structure really does matter for how people form financial ties," says Jacob Moscona, an MIT economist and co-author of the newly published study.

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