John E. Grable

Financial Risk Tolerance and Additional Factors That Affect Risk Taking in Everyday Money Matters

The purpose of this research was to extend the investigative line of inquiry, as initiated by Carducci and Wong (1998), regarding risk taking in everyday money matters by examining demographic, socioeconomic, and attitudinal characteristics that may be used either individually or in combination as determinants of financial risk tolerance. Discriminant analysis results indicated that risk tolerance was associated with being male, older, married, professionally employed with higher incomes, more education, more financial knowledge, and increased economic expectations. Findings suggest that the achievement of financial success can be explained, at least in part, by a combination of someones personality characteristics and socioeconomic background.

Financial risk tolerance revisited: the development of a risk assessment instrument*

Abstract This paper explores conceptual, methodological, and empirical issues related to the development of a financial risk-tolerance assessment instrument. Financial risk tolerance is a significant factor in a number of household financial decisions, yet few recognized, valid, and reliable methods of assessment are available for use by financial service providers and educators. Empirical results from a multistage development of a 13-item risk assessment instrument are discussed. The multidimensional instrument is presented as the foundation for the development of a more widely used and accepted index. Future use by practitioners and researchers is encouraged to further validate the usefulness of the instrument.JEL classification:D81

Factors Associated With Seeking and Using Professional Retirement-Planning Help

Summary This study examined the factors associated with retirement- planninghelp-seeking behavior. A specific effort was made to investigatewhether one factor or a set of factors could be used to distinguishbetween who was more or less likely to seek and use help from a pro-fessional rather than from another source (e.g., family, friends, col-leagues,themedia,etc.)whenmakingretirement-planningdecisions.Results from a logistic regression were used to conclude that gender,income, financial behaviors, retirement attitude, and risk tolerancewere significantly related with professional retirement help-seekingbehavior. It was found that women versus men, those who (a) hadhigherincomes,(b)exhibitedbetterfinancialbehaviors,(c)hadapos-itive and proactive attitude toward retirement, and (d) had a higherlevel of risk tolerance were more likely to seek and use help fromfinancial professionals when making retirement investmentdecisions. DISCUSSION AND IMPLICATIONS The findings presented in this article suggest that the general con-sensus concerning the type of person who is or is not more likely toseek and use professional retirement planning help may need to bere-examined and adjusted. The logistic regression analysis showedthatWhite/Caucasianmarriedmenarenotnecessarilymorelikelytoseek and use professional retirement guidance as might be expected.It was found, instead, when all other demographic, socioeconomic,and attitudinal factors were accounted for, that women were morelikely to seek and use help from a professional. This finding con-firmed Carole’s (1997) conclusion that men are more likely thanwomentorelyontheirownknowledgeandintuition,orseekandusehelp from a friend, colleague, or other source, rather than turning to aprofessional for help.Why might women be more likely than men, holding all other fac-tors constant, to seek and use professional help? One suggestion maybe that men tend to be more confident than women when it comes tomaking financial decisions. Barber and Odean (1999) found that menare more prone to overconfidence than women, and that as a result,men tend to avoid professional assistance when making investmentdecisions. Unfortunately, Barber and Odean also reported that

The influence of mood on the willingness to take financial risks

The purpose of this study was to determine whether support could be found for either the Affect Infusion Model or the Mood Maintenance Hypothesis regarding how mood influences financial risk tolerance. An ordinary least‐squares regression model was used to determine if people who exhibited a happy mood at the time they completed a survey scored differently than those who were not happy. In a sample (n = 460) of employed mid‐western respondents between the ages of 18 and 75 years, being in a happy mood was positively associated with having a higher level of financial risk tolerance, holding biopsychosocial and environmental factors constant. Support for the Affect Infusion Model was obtained.

Financial satisfaction and financial stressors in marital satisfaction.

Using a sample of 310 married respondents from one U.S. Midwestern state, a test was conducted to examine the association of financial satisfaction and financial stressors in a spouses decision to stay married to the same person or leave the relationship. The role of demographic and socioeconomic variables, religiosity, psychological constructs, financial satisfaction, and financial stressors as factors influencing marital satisfaction was tested. Financial stressors were measured using a list of financial stressors adapted from the literature. Financial satisfaction was measured with a one-item scale. The Kansas Marital Satisfaction Scale was used as a validation tool to assess whether individuals would marry or not marry again. Religiosity and financial satisfaction were positively associated with marital satisfaction. A negative interaction between financial satisfaction and financial stressors was also noted. Findings suggest that respondents who are financially satisfied tend to be more stable in their marriages.

Evidence of lower risk tolerance among public sector employees in their personal financial matters

Critics claim that excessive risk avoidance is characteristic of public sector workers. To test this contention, the financial risk tolerance scores of public sector and private sector employees who had used financial planning services were compared on a financial risk tolerance scale. Public sector employees scored lower on financial risk tolerance relative to private sector employees. Differences remained even after controlling for other variables linked to risk tolerance.

The Future of Financial Planning and Counseling: An Introduction to Financial Therapy

The purpose of this chapter is fourfold. First, the chapter defines what is generally meant when practitioners and researchers talk about financial planning and counseling as a field of study and practice. Second, the process and theoretical underpinnings of financial planning and counseling are discussed. Third, a review of the historical development of marriage and family therapy is presented. Last, a new emerging field of study, namely, financial therapy is introduced. Specifically, financial therapy is defined and reviewed. An overview of the history and theoretical development of financial therapy is also provided. The chapter concludes with a discussion on how assessment of tools and techniques can be useful to practitioners, researchers, clinicians, and educators in the field of financial therapy, and how assessment can help this new discipline find grounding and gain respect among already established fields.

Self-assessments of risk tolerance by women and men.

A convenience sample of 1,741 Internet users completed a 12-item financial risk-tolerance questionnaire. They also rated themselves on their tolerance for financial risk using a 4-point rating scale. The 12-item summated rating score was used to predict the self-rating. The residual between actual and predicted self-rating was compared by sex. The residual for males was positive, indicating that men tended to overestimate their proclivity for taking risks. Conversely, the residual for females was negative, suggesting that women underestimate their tolerance for risk. The relationship held when controlling for other factors linked to risk tolerance, i.e., age, household income, marital status, and education. It was also noted that risk tolerance was overestimated by younger respondents and those with a graduate education.

Risk Tolerance, Projection Bias, Vividness, and Equity Prices

This article examines two hypotheses. First, investor risk tolerance fluctuates in part due to changes in the investment markets, and, second, investors tend to project stock market closing price data into the formation of risk-tolerance attitudes. Regression tests were conducted to determine the role of projection bias and vividness in the formation of risk attitudes among a convenience sample of internet survey respondents (N = 1,355). It was found that individuals who own securities tend to use recent and vivid stock market data when establishing risk attitudes. Further, risk attitudes, on average and in the aggregate, were found to fluctuate based on closing stock prices the previous week. Financial planners are cautioned that risk tolerance should not be used as a static input within asset allocation models.

A test of the relationship between self-classified financial risk-tolerance and investment risk-taking behaviour

The purpose of this study was to determine how accurately individuals judge their own level of financial risk-tolerance and whether self-assessed financial risk-tolerance is associated with investment risk-taking behaviours. Using a sample of internet risk-assessment survey respondents (n = 1,740), it was concluded that individuals do a fair job of assessing their own level of financial risk-tolerance using self-classifications into one of four levels of risk-tolerance (r = 0.50 with risk-tolerance test score). Moreover, this self-classification was associated with actual risk-taking investing behaviours. Individuals who saw themselves as real risk avoiders or cautious when making investments tended to hold more cash than riskier assets like equities. Conversely, individuals who viewed themselves as gamblers or being willing to take risks after completing adequate research had larger holdings in equities.