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

See all articles by Kyoung Tae Kim

Kyoung Tae Kim

University of Alabama

Sherman D. Hanna

Ohio State University (OSU)

Dongyue Ying

Ohio State University (OSU) - Consumer Sciences Department

Date Written: April 25, 2020

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.

Keywords: Equity ownership; Measure evaluation; Risk tolerance; Survey of Consumer Finances

JEL Classification: D14, D81, G11

Suggested Citation

Kim, Kyoung Tae and Hanna, Sherman D. and Ying, Dongyue, The Risk Tolerance Measure in the 2016 Survey of Consumer Finances: New, but is it Improved? (April 25, 2020). 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., Available at SSRN: https://ssrn.com/abstract=3585115

Kyoung Tae Kim

University of Alabama ( email )

316-C Adams Hall
Tuscaloosa, AL 35487-0001
United States

Sherman D. Hanna (Contact Author)

Ohio State University (OSU) ( email )

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

Dongyue Ying

Ohio State University (OSU) - Consumer Sciences Department ( email )

1787 Neil Avenue
Columbus, OH 43210
United States
6084179524 (Phone)

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