Sung & Hanna, 1996, Risk Tolerance, Financial Counseling and Planning


J. & Hanna, S. (1996). Factors Related to Risk Tolerance, Financial

Counseling and Planning
, 7, 11-20.

Factors Related To Risk Tolerance

Jaimie Sung, The Ohio

State University

Sherman Hanna, The Ohio

State University

Effects of financial and demographic variables on risk tolerance were estimated

for households with an employed respondent in the 1992 Survey of Consumer

Finances. Logistic regression analysis showed that female headed households

were less likely to be risk tolerant than otherwise similar households

with a male head or a married couple. Differences in risk tolerance by

gender/marital status, ethnic group and education could be due to differences

in understanding of the nature of risk.

KEY WORDS: risk tolerance, individual investors, Survey of Consumer


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 This article was mentioned in the James Glassman

column in May 25, 1997 issue of the Washington Post.

James K. Glassman, Sunday, May 25, 1997 ; Page H01

    “… The emotion that rules the lives of most investors isn’t greed; it’s fear. And
    in the market, fear is worse than greed. It causes you to sell too soon, buy
    too late — or never buy at all….”

    “… Dollar-cost averaging is fine if you’re risk-averse. (Also, it’s an
    excellent discipline to start a program of investing, say, $200 a
    month in mutual funds.) Still, if you have the dough in a lump
    sum, the time to invest it is immediately.

    But some people, equityphobes, can’t — or won’t. Who are they?

    A recent article by Ohio State University economists Jaimie Sung
    and Sherman Hanna, in the academic journal Financial Counseling
    and Planning, gives the answers. Sung and Hanna used data from
    the 1992 Survey of Consumer Finances, sponsored by the Federal
    Reserve Board and the U.S. Treasury.

    The survey found that, overall, 60.4 percent of respondents were
    “risk-tolerant” (measured by whether they answered “no” to this
    question: “When you save or make investment [sic], would you
    take no financial risks?”) Tolerance for risk increased with the
    amount of assets that a person owned. But the range of responses
    is surprisingly wide:

    About 70 percent of single men were risk-tolerant, compared with
    just 46 percent of single women (and 63 percent of couples).

    While 65 percent of whites were risk-tolerant, the proportion for
    blacks was just 38 percent; for Hispanics, it was 46 percent.

    The age group most tolerant of risk was 25 to 34 years; least
    tolerant, a tie between those under 25 and those over 55.

    Nearly three-quarters of Americans who graduated from college
    were risk-tolerant, compared with just one-third of those who did
    not get a high school diploma.

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