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

Sung, 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 Finances

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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

"... 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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