Household Ratio Guidelines for the Amount of Investments

25 Pages Posted: 20 Aug 2016 Last revised: 2 Dec 2016

See all articles by Sherman D. Hanna

Sherman D. Hanna

Ohio State University (OSU)

Kyoung Tae Kim

University of Alabama

Date Written: August 18, 2016

Abstract

Some textbooks suggest using financial ratios to provide simple indicators of whether households are making appropriate financial decisions. We investigate three investment ratios mentioned in textbooks: investments to net worth, investments to annual income, and investments to total assets. We conduct regressions on respondent evaluation of the adequacy of retirement income, among households with a non-retired head in the 2013 Survey of Consumer Finances. The investments to total assets ratio has the strongest relationship to adequacy, controlling for selected household characteristics. The investments to net worth ratio (Capital Accumulation ratio) is inferior to the other two ratios.

Keywords: Capital Accumulation Ratio, financial ratios, investing, lifecycle theory of savings, Survey of Consumer Finances, retirement

JEL Classification: D14, D91, G11, J26

Suggested Citation

Hanna, Sherman D. and Kim, Kyoung Tae, Household Ratio Guidelines for the Amount of Investments (August 18, 2016). Hanna, S. D., & Kim, K. T. (2016). Household ratio guidelines for the amount of investments. Financial Services Review, 25 (3), 263-277.. Available at SSRN: https://ssrn.com/abstract=2826311

Sherman D. Hanna (Contact Author)

Ohio State University (OSU) ( email )

1787 Neil Avenue
Campbell 265D
Columbus, OH 43210
United States
614-292-4584 (Phone)

Kyoung Tae Kim

University of Alabama ( email )

312 Adams Hall
Tuscaloosa, AL 35487-0001
United States

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