How does social trust influence household financial decisions: An explanation based on the "Mystery of Limited Participation"

How does social trust influence household financial decisions: An explanation based on the "Mystery of Limited Participation" | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Article How does social trust influence household financial decisions: An explanation based on the "Mystery of Limited Participation" Zhiguo Ding, Feifei Xia, Yuanteng Xu This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-8128161/v1 This work is licensed under a CC BY 4.0 License Status: Under Review Version 1 posted 4 You are reading this latest preprint version Abstract China's financial market has long been characterized by a stark contrast between high savings and low participation in financial assets, a phenomenon widely recognized as the "limited participation puzzle." This imbalance—where households maintain substantial savings deposits but show limited engagement in equity, fund, or bond markets—has become a key constraint on the efficient allocation of household wealth and on the high-quality development of the financial sector.Trust serves as the foundation for transactions and cooperation, exerting a significant influence on residents' subjective financial attitudes and demands. Exploring the role of social trust as an informal institutional factor in household financial decision-making provides an important perspective for understanding this puzzle. Using data from the China Family Panel Studies (CFPS), this study examines the intrinsic connection between social trust and household financial participation from the perspective of informal institutional dimension. The research findings indicate that social trust can effectively promote household financial participation; the primary mechanisms include reducing interpersonal relationship expenses, enhancing digital trust levels, and strengthening self-efficacy. Social trust demonstrates positive synergistic effects with the digital economy and exerts more pronounced impacts in regions with weak formal institutional development. For urban households and those with higher education levels, the role of social trust in promoting household financial participation is particularly significant. This study offers insights and references for studying micro-financial behaviors from a social capital perspective and provides guidance for policy design. Business and commerce/Business and management Social science/Business and management Business and commerce/Economics Social science/Economics Business and commerce/Finance Social science/Finance social trust family financial participation digital economy Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Under Review Version 1 posted Editorial decision: Revision requested 24 Nov, 2025 Editor assigned by journal 23 Nov, 2025 Submission checks completed at journal 19 Nov, 2025 First submitted to journal 16 Nov, 2025 You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-8128161","acceptedTermsAndConditions":true,"allowDirectSubmit":false,"archivedVersions":[],"articleType":"Article","associatedPublications":[],"authors":[{"id":547414110,"identity":"31e6a8eb-0c1b-470a-be6e-0523e813aa96","order_by":0,"name":"Zhiguo Ding","email":"","orcid":"","institution":"Jilin University","correspondingAuthor":false,"prefix":"","firstName":"Zhiguo","middleName":"","lastName":"Ding","suffix":""},{"id":547414111,"identity":"be3f8ab8-6f49-41d2-b227-cb8f875a64d9","order_by":1,"name":"Feifei 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