Financial Risk Attitudes in Australian Households: A Comparative Analysis of the Impact of Demographic and Socioeconomic Factors and Macroeconomic Conditions

27 Pages Posted: 21 Aug 2012

Date Written: August 19, 2012

Abstract

In this paper, we use panel data from the 2001–10 waves of the Household, Income, and Labour Dynamics in Australia (HILDA) survey to investigate the changing financial risk attitudes of Australian households, focusing on changes in macroeconomic conditions. This is an important concern because knowledge of the risk tolerance of individuals and households has important implications for, among other things, financial planning, asset pricing, and monetary and regulatory policy. We employ ordered logit models to test for changes in risk tolerance, after controlling for changing respondent household demographic and socioeconomic characteristics and macroeconomic conditions. In general, having a bachelor’s degree or higher, being self-employed, being in very good or excellent health and having net wealth in excess of $1 million suggest an increased likelihood of risk tolerance. Conversely, a higher likelihood of risk aversion is associated with being young, having an educational qualification of Year 11 or lower, being female, having children in the household, and being in the lowest net wealth category. Marginal effects show that being in the highest net wealth category has the greatest positive effect on being in the highest risk tolerance category. Conversely, being female (both single and married) has the greatest impact on being more risk averse. Though the macroeconomic indicators lack individual significance, they are jointly significant in determining risk attitudes. Over the sample period, Australians have generally reduced their tolerance for financial risk.

Keywords: Risk attitudes, Risk aversion, Household, Income and Labour Dynamics in Australia (HILDA) survey, Ordered logit

JEL Classification: C23, D14

Suggested Citation

West, Tracey and Worthington, Andrew C., Financial Risk Attitudes in Australian Households: A Comparative Analysis of the Impact of Demographic and Socioeconomic Factors and Macroeconomic Conditions (August 19, 2012). 25th Australasian Finance and Banking Conference 2012, Available at SSRN: https://ssrn.com/abstract=2132244 or http://dx.doi.org/10.2139/ssrn.2132244

Tracey West (Contact Author)

Griffith University ( email )

170 Kessels Road
Nathan, Queensland QLD 4111
Australia

Andrew C. Worthington

Griffith University ( email )

170 Kessels Road
Nathan, Queensland 4111
Australia
+61 (0)7 3735 4273 (Phone)
+61 (0)7 3735 3719 (Fax)

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