Social Structure: A Key Factor in Financial Relationships
Around the world, people typically use informal financial systems, such as borrowing and lending within a social network. The concept of such an understanding gives a good feel for what goes on locally and contributes to improvement in poverty conditions.
East Africa is also host to a remarkable example of informal finance: an experiment coauthored with an economist at MIT revealed the stark differences in interaction styles over financial matters depending on whether local societies are organized around family units or age-based groups.
Although in many parts of the world, extended families form the principal type of social unit, in millions of societies, age-based cohorts play a more prominent role. In such societies, instead of transitioning to manhood or womanhood individually, people transition together and stay closer to their peers than to their extended family members, and these indeed have an influence on their financial behaviors.
“Social structure has profound impacts on the way people build financial relationships,” says MIT economist Jacob Moscona and co-author to this study.
Social structure determines how money flows within communities, influencing both who receives support and who provides it. As MIT economist Jacob Moscona explains, “in societies organized around age-based groups, cash transfers tend mainly to flow within the same age group rather than across cohorts.” This arrangement creates a tight-knit network of economic support among peers but limits financial ties across generations.
Social structure in kinship-based societies functions differently. Here, pension payments are often shared across generations within a family. For example, older adults frequently share their pension money with their grandchildren. This system extends financial support beyond immediate needs, creating a bridge of assistance between the young and the elderly. As a result, more relatives benefit from financial aid, including those who may be more vulnerable.
Social structure differences between kin-based and age-based communities can have significant health implications. For instance, in kin-based societies, an additional year of pension transfers to an elderly person can reduce the probability of child malnutrition by 5.5 percent. This is because money flows more freely across generations, offering better support to younger family members.
Social structure in age-based societies, however, results in fewer financial transfers between generations. This limited flow means fewer positive effects on children’s well-being, as support remains concentrated among members of the same age group.
Social structure thus plays a critical role in shaping economic relationships and community well-being. It highlights the powerful influence of social connections on financial behavior and its broader impact on health outcomes.
The paper, Age Set versus Kin: Culture and Financial Ties in East Africa It was published in the September issue of the American Economic Review. The authors are Jacob Moscona-the 3M Career Development Assistant Professor of Economics at MIT-and Awa Ambra Seck-an assistant professor at Harvard Business School.
Dollars given away: Informal financial arrangements have long been a favorite subject for economists to conduct research on. Consider MIT Professor Robert Townsend, who has advanced the field with pioneering studies of rural financial systems in Thailand.
The structure of age-based social groups, however, has always been the primary focal point of anthropologists in comparison to better-known kin-based structures. For instance, the Maasai people in Northern Kenya tend to find that all members of the same age group have a much stronger bond with each other than with any other person, be it spouses or children.
These age-based cohorts are typically much more generous than siblings in sharing common resources such as food and lodging. The present study provides important new knowledge in the economic domain of this corpus of information in anthropology.
The authors conducted their research by analyzing the Kenyan government’s Hunger Safety Net Program, cash transfer program which was launched in 2009 and now spreads over 48 areas in Northern Kenya characterized by both age-based and kin-based social groups, thus allowing the researchers to compare these two types of groups in terms of financial implications.
Social Structure: Shaping Financial Flows and Policy Impacts
In age-based societies, recipients of the HSNP program spent their cash transfers on others within their age cohort, with no spillover to people in other generations. In kin-based societies, on the other hand, there was some spillover across generations, though no informal cash flows were seen beyond these family ties.
The researchers evaluate the nationwide implementation of the SCG programme, launched in 2011, in Uganda-a country where both kin-based and age-based societies coexist. Cash transfer programmes of this type offer elders a monthly benefit equivalent to about $7.50-that is around 20 percent of per-capita spending. These programs are being implemented in every sub-Saharan Africa region-even in areas with robust age-based social organization.
Social structure study found once again that financial flows follow the patterns of social ties. For instance, while pension has a positive and significant effect on child nutrition in the case of kin-based households characterized by strong generational connections, such a relationship was not seen in age-based societies.
“These policies had very different effects on these two groups due to the fundamentally different structure of financial relationships,” Moscona points out.
For Moscona, this all points toward two important considerations: a deeper understanding of the dynamics of social dynamics and the redesign of social programs focused on those contexts.
“It’s revealing something fundamental about how the world operates—social structure plays a crucial role in shaping financial relationships,” Moscona explains. “And this understanding has the potential to significantly influence policy design.”
Based on literature related to the expansion of policy interventions designed to reduce child or elderly poverty, society’s informal cash flow is worth considering in designing those interventions. In doing so, this study supports this view and emphasizes that recognition of social structure is a priority for enhancing effectiveness.
With all of these changes in societal structures, a few groups are more vulnerable on average, “Moscona says. “In kin-based groups, the sharing of resources between the young and old helps to reduce inequality across generations.”.
On the other hand, age-based groups systematically put both the young and the elderly at a higher risk. In addition, in kin-based societies, some families might face much more deprivation than others while, in age-based societies, often age cohorts cut across lineage or extended family boundaries, which translates into more overall equality.
This makes a difference when discussing poverty reduction efforts.
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