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The Risk Tolerance Measure in the 2016 Survey of Consumer Finances: New, But Is It Improved?

The Risk Tolerance Measure in the 2016 Survey of Consumer Finances: New, But Is It Improved? The Survey of Consumer Finances (SCF) has included a 4-level risk tolerance measure since 1983. In 2016, the SCF also included an 11-level risk tolerance measure. We compare the two measures, and develop suggestions for using the new measure. While the new measure is seemingly simpler than the old measure, we demonstrate that it does not have a monotonic relationship with owning stock assets, with a pattern similar to the relationship of the old measure to stock ownership. We also identify complex patterns of factors related to different levels of the new measure, for instance education has a negative relationship at one level but positive at another level. Those using the new measure should consider the complex patterns we demonstrate. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Counseling and Planning Springer Publishing

The Risk Tolerance Measure in the 2016 Survey of Consumer Finances: New, But Is It Improved?

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Publisher
Springer Publishing
Copyright
© 2021 Springer Publishing Company
ISSN
1052-3073
eISSN
1947-7910
DOI
10.1891/jfcp-19-00022
Publisher site
See Article on Publisher Site

Abstract

The Survey of Consumer Finances (SCF) has included a 4-level risk tolerance measure since 1983. In 2016, the SCF also included an 11-level risk tolerance measure. We compare the two measures, and develop suggestions for using the new measure. While the new measure is seemingly simpler than the old measure, we demonstrate that it does not have a monotonic relationship with owning stock assets, with a pattern similar to the relationship of the old measure to stock ownership. We also identify complex patterns of factors related to different levels of the new measure, for instance education has a negative relationship at one level but positive at another level. Those using the new measure should consider the complex patterns we demonstrate.

Journal

Journal of Financial Counseling and PlanningSpringer Publishing

Published: Jun 2, 2021

References