The Risk Tolerance Measure in the 2016 Survey of Consumer Finances: New, but is it Improved?
1.Kim, K.T., Hanna, S. D., & Ying, D. (2020). The Risk Tolerance Measure in the 2016 Survey of Consumer Finances: New, but is it Improved? Journal of Financial Counseling and Planning, accepted for publication.
28 Pages Posted: 21 May 2020 Last revised: 7 Aug 2020
Date Written: April 25, 2020
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.
Keywords: Equity ownership; Measure evaluation; Risk tolerance; Survey of Consumer Finances
JEL Classification: D14, D81, G11
Suggested Citation: Suggested Citation