The influence of subjective financial well-being on South African risk tolerance

Abstract

Financial risk tolerance is defined as the highest level of uncertainty an individual is willing to take during a financial decision. Previous studies found that financial risk tolerance can be influenced by age, gender, marital status, and ethnic groups. Therefore, it is important to analyse the influence of demographic factors on financial risk tolerance as it influences the investment decisions of South African investors and their financial well-being. Financial well-being is defined as a state of being financially free and being able to meet present and future standard of living desires. The aim of this study is to investigate whether the financial risk tolerance of South African investors is influenced by their subjective financial well-being. South African investment companies can use this study as a prediction tool to use on their client base in order to assume their risk tolerance levels, and if possible, improve their financial well-being depending on their demographics. The results from the study indicates that African, female investors between 35-49 years who are not married and have high financial well-being are willing to invest in high risk portfolios as they indicated higher levels of risk tolerance.

Keywords: Financial risk tolerance, financial well-being, demographics, investors, binary regression, South Africa