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
Sherman Hanna, The Ohio
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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