The relationship between an individual s financial risk tolerance (FRT) level and
demographic factors has been widely researched because of the importance of
determining an individual s risk profile. The process by which individuals assess risk
to make financial decisions is an important part of the investment process and is an
obligatory input for financial advisors in providing financial advice for the client. The
assessment of financial risk tolerance is often subjective in nature, and with it comes
limitations to quantify it in alignment with objective risk, such as asset allocation and
Given the importance of financial risk tolerance, both from a legislative as well as a
fiduciary perspective, it is imperative that a better understanding of these
relationships is obtained to assist financial planners, financial advisers and clients.
The aim of the study was to determine the association between an individual s
financial risk tolerance and selected demographics. Furthermore, the study aimed to
determine whether there were differences in the levels of financial risk tolerance
between South African respondents and those from Australia, the United States of
America and the United Kingdom.
The study was a cross-cultural secondary data analysis of previously collected
survey data. The survey data comprised of 6 828 respondents from all four
countries who accessed the questionnaire.
The secondary data was collected from a survey which used a financial risk
tolerance assessment measure, the FinaMetrica personal risk profiling system,
which is a commercially provided computer-based risk tolerance measurement tool.
Demographics included age, gender, marital status, level of education, income levels
and net worth. The risk tolerance components of the questionnaire included
questions about the respondent s attitude, values and financial experience. Statistical techniques used for analysis included correlation analysis, t-tests, oneway
analysis of variance (ANOVA) and logistic regression. The study revealed
cultural differences in the levels of financial risk tolerance between respondents from
South Africa, Australia, the United States of America and the United Kingdom, with
South Africa having the highest mean financial risk tolerance score. The study
revealed that FRT levels are positively related to education, income and combined
income for all countries as well as for the total sample when these relationships were
considered on a univariate case. These findings were in line with other literature
measuring these relationships. For all countries except South Africa, financial risk
tolerance scores were found to have a negative relationship with age, which was in
line with literature findings. However, within a multivariate model context, age was a
consistent predictor and negatively related to financial risk tolerance levels in all
countries and for the total sample.
In the multivariate model, the total sample consisting of the data of all four countries
revealed that higher financial risk tolerance levels were associated with being male,
with a higher level of education attained, earning higher income, holding a higher
accumulated net worth, being younger and being a South African.
Dissertation (MCom)--University of Pretoria, 2016.