The effect of gender and ethnicity on financial risk tolerance in South Africa

Abstract

Financial risk tolerance refers to the amount of risk or the attitude of a person that is willing to take risks when making a financial decision or investing money, for example, saving for retirement purposes. An investor needs to make important financial decisions regarding investment products, asset allocation and/or fund accumulation strategies. These decisions have been attributed to risk tolerance. One, therefore, needs to investigate and consider the influence of demographic variables on the investor’s level of risk tolerance. This study aimed to place investors in a certain level of risk tolerance based on their gender and ethnicity. This will significantly contribute towards the risk profiling of investment companies. The results for the study indicated that male investors are more risk tolerant than female investors and that there exists a statistical difference between the risk tolerance levels of different ethnic groups. African investors were found to be more risk tolerant than White, Coloured and Asian investors. A difference was also detected between male and female investors of different ethnic groups. White males indicated that they would take on above average risk compared to White females who would rather take on average or no risk at all.

Keywords: Risk tolerance, gender, investors, ethnicity