Association between Behavioral Life-Cycle Constructs and Financial Risk Tolerance of Low-to Moderate-Income Households

Abstract

Utilizing data from an Internet survey among low-to-moderate-income households in several states, this study examined the link between behavioral life-cycle (BLC) constructs and financial risk tolerance. The results of ordinary least squares regression indicated a positive association between financial risk tolerance and several factors that measured the BLC constructs. Respondents who scored higher in self-control had significantly higher risk tolerance scores. Smaller effects were found for the mental accounting and framing constructs. These results suggest low-to-moderate-income households can benefit from financial education and commitment strategies.

Keywords: Financial risk tolerance; Behavioral life-cycle; Self-control; Mental accounting; Framing