Financial risk tolerance revisited

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. © 2000 Elsevier Science Inc. All rights reserved.
 
 

Does Financial Literacy Moderate the Relationship among Demographic Characteristics and Financial Risk Tolerance? Evidence from Egypt

“…Therefore, they refused life-cycle risk aversion hypothesis and suggested that the pattern of relationship between age and risk tolerance is reverse of common pattern. Grable and Lytton (1999) also presented evidence that older individuals revealed higher levels of risk tolerance than younger. They concluded that age accounts for a relatively small amount of the variation in financial risk tolerance.…”

“…Add to that, they found that wealth is the most important determinant of risk tolerance. Grable and Lytton (1999) showed that a higher level of income has a positive effect on willingness to tolerate a risk. Similarly, Hartog, Ferrer-iCarbonell, and Jonker (2000); Faff, Hallahan and McKenzie (2009) and Gilliam, Chatterjee and Zhu (2010) confirmed that risk aversion fell as income or wealth increased.…”

“…Recently, Gustafsson and Omark (2015) asked the following question: Do individuals differ in financial risk tolerance due to their level of financial literacy? They distributed the questionnaire of Grable and Lytton (1999) to measure financial risk tolerance among a sample of Swedish responders with an economic and noneconomic background. Regardless of the academic background of the responder, their results showed that financial literacy has made a positive effect on financial risk tolerance.…”

“…Therefore, they still select the level of financial risk tolerance that they would be most likely to take if they had money to invest. Grable and Lytton (1999) developed a risk tolerance instrument depending on analyzing theoretical, procedural, and empirical issues related to the development of a financial risk tolerance instrument. They developed an instrument consist of 13-items to assess financial risk tolerance.…”

“…Their results showed that the instrument is valid and reliable. Based on financial risk tolerance of Grable and Lytton (1999), this study developed a financial risk tolerance to appropriate Egyptian or Arabian culture. The validity of the scale measured by principal components extraction of factor analysis.…”