scholarly journals Overconfidence in financial knowledge associated with financial risk tolerance in older adults

2020 ◽  
Author(s):  
Gregory Russell Samanez-Larkin ◽  
Gary Mottola ◽  
Darby Heflin ◽  
Lei Yu ◽  
Patricia Boyle
Keyword(s):  
Older Adults ◽  
Cognitive Impairment ◽  
Risk Aversion ◽  
Risk Taking ◽  
Financial Literacy ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Older Age ◽  
Financial Knowledge ◽  
Financial Risk Tolerance

Taking excessive financial risk in older age can have harmful, far-reaching consequences as opportunities to recover lost wealth are limited. Better understanding the mechanisms of financial risk taking in older age is critically important for both identifying vulnerabilities in certain older adults and for developing interventions to empower aging investors to make wise financial choices into the most advanced ages. The goals of the present study were to identify age differences in financial literacy, confidence in financial knowledge, and risk taking and how literacy and confidence were related to financial risk taking across older adults with and without cognitive impairment (ages 58–101). Using cross-sectional data from the Rush Memory and Aging Project, analyses revealed that risk aversion was higher and self-reported willingness to take financial risks was lower at older ages. Financial literacy was similar across the sixties and seventies but lower at the oldest ages. However, confidence in financial knowledge was not associated with age when controlling for financial literacy. In exploratory analyses, a measure of overconfidence in financial knowledge was positively associated with self-reported financial risk tolerance but not a behavioral measure of risk aversion. The overconfidence effect on risk tolerance did not vary across individuals with no cognitive impairment or Mild Cognitive Impairment (MCI). Overconfidence accounted for about 6% of the variance in financial risk tolerance. The present results suggest that overconfidence may contribute to risky financial behavior. Calibration of confidence levels to actual literacy is a potential target for future interventions aimed at protecting senior investors.

Retail Investors’ Financial Risk Tolerance and Risk-taking Behaviour: The Role of Psychological Factors

2021 ◽  
pp. 231971452110582
Author(s):  
Pragati Hemrajani ◽  
Rajni ◽  
Rahul Dhiman
Keyword(s):  
Risk Taking ◽  
Psychological Factors ◽  
Structural Equation ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Individual Investors ◽  
Financial Advisors ◽  
Research Model ◽  
Financial Risk Tolerance

The aim of this article is to look at how two psychological factors affect financial risk tolerance (FRT) and financial risk-taking behaviour (FRB) of individual investors. The study also investigates the role of FRT in mediating the relationship between psychological factors and FRB. A standardized questionnaire was used to collect the information. For the study, a total of 303 completed questionnaires were used. The proposed research model was validated and assessed using partial least squares structural equation modelling. The findings revealed some important experiences. Emotional intelligence and impulsiveness have a significant relationship with both FRT and FRB, according to the results. The findings also support FRT’s position as a mediating factor in the proposed research model. The results emphasize the importance of psychological factors in determining an individual’s FRT and FRB. FRT is a complex mechanism that entails more than just psychological considerations. As a result, further research is needed to decide which additional factors financial advisors can use to increase the explained variance in FRT inequalities.

Antecedents to responsible financial management behavior among young adults: moderating role of financial risk tolerance

2020 ◽  
Vol 38 (5) ◽  
pp. 1177-1194 ◽  
Author(s):  
Dhananjay Bapat
Keyword(s):  
Young Adults ◽  
Financial Management ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Financial Knowledge ◽  
Financial Behavior ◽  
Management Behavior ◽  
Content Type ◽  
Financial Risk Tolerance

PurposeThe study examines the antecedents of responsible financial management behavior among young adults in India and explores the role of financial risk tolerance as a moderating variable.Design/methodology/approachThe sample includes young adults in the age group of 18–35. The analysis uses a two-step approach via standard partial least squares structural modeling (PLS-SEM) and ordinary least square (OLS) regression.FindingsStructural modeling results show that financial attitude fully mediates the relationship between financial knowledge and responsible financial management behavior, and locus of control influences responsible financial management behavior. Financial risk tolerance moderates the relationship. Among demographic factors, age and occupation influence responsible financial management behavior.Research limitations/implicationsThe financial knowledge used in the survey are based on self-reported responses. The future study can include participants from both developed and emerging countries to assess similarities and differences.Practical implicationsDespite the growing focus on improving financial literacy, there are growing concerns regarding responsible financial behavior. Since financial services is related to fiduciary responsibility, managers and policymakers need to ensure that financial knowledge results in improving financial attitude, which further leads to responsible financial behavior.Originality/valueThe present study from an emerging country will add value to the literature.

Market discipline in the behavioral finance perspective: a case of Sharia mutual funds in Indonesia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Umi Widyastuti ◽  
Erie Febrian ◽  
Sutisna Sutisna ◽  
Tettet Fitrijanti
Keyword(s):  
Mutual Funds ◽  
Behavioral Finance ◽  
Financial Literacy ◽  
Financial Risk ◽  
Market Discipline ◽  
Risk Tolerance ◽  
Exogenous Variables ◽  
Content Type ◽  
Withdrawal Behavior ◽  
Financial Risk Tolerance

Purpose This study aims to determine antecedents of market discipline. A model was constructed by extending the theory of planned behavior (TPB) to explore the cognitive, psychological and social factors that influence the market discipline in the form of withdrawal behavior. Design/methodology/approach This study applied a quantitative approach by surveying 181 Indonesian retail investors in Sharia mutual funds, which were represented by civil servants. The samples were collected using the purposive sampling technique. This study used the partial least square–structural equation model to analyze the data. Findings The results revealed that the Islamic financial literacy, the attitudes toward withdrawal, the subjective norms and the perceived behavioral control had a positive significant effect on the withdrawal intention, whereas financial risk tolerance had an insignificant impact. Then, all the exogenous variables and intention to withdraw had a significant contribution in explaining market discipline. Contrary to the proposed hypothesis, the attitude toward withdrawal had a negative impact on market discipline. The structural model indicated that the TPB could be extended by adding some exogenous variables (i.e. Islamic financial literacy and financial risk tolerance) in determining the intention to withdraw and withdrawal behavior, which indicated the market discipline in Sharia mutual funds. Research limitations/implications This study was limited to individual investors who work as civil servants. This study did not accommodate different demographic factors such as age and gender, which influence fund withdrawal behavior. Practical implications The government must focus on the inclusion of market discipline in Sharia mutual funds’ regulation to encourage the risk management disclosure, specifically that related to Sharia compliance. Originality/value Previous studies applied a traditional finance theory to predict market discipline, but this study contributes to filling the theoretical gap by explaining the market discipline from a behavioral finance perspective that was found in Sharia mutual funds.

Factors Associated With Financial Risk Tolerance Based on Proportional Odds Model: Evidence From Sweden

2017 ◽  
Vol 28 (1) ◽  
pp. 155-164 ◽  
Author(s):  
Manuchehr Irandoust
Keyword(s):  
Financial Literacy ◽  
Financial Stability ◽  
Financial Risk ◽  
Risk Tolerance ◽  
Proportional Odds Model ◽  
Specific Information ◽  
Proportional Odds ◽  
Model Evidence ◽  
Portfolio Structure ◽  
Financial Risk Tolerance

Is the way that individuals make risky financial choices, or tradeoffs over time, related to demographic characteristics? This article attempts to examine whether there is a link between demographic variables, risk aversion, and impatience using a randomly drawn sample of the population in Sweden. Based on a proportional odds model, the findings show that willingness to take financial risk depends on portfolio structure, gender, age, educational attainment, income, financial stability, financial literacy, marital status, and family size. Financial counselors are encouraged to use the variables related to financial risk tolerance discussed in this article whenever developing portfolios or in calculations that require specific information about a person’s willingness to take financial risk.

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