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Cultural Difference:Investment Attitudes and Behaviors of
High Income Americans
Tahira K. Hira – Iowa State University515.294.2042 [email protected]
Caezilia Loibl – Ohio State University
Tom Schenk Jr. – Iowa State University*This work was made possible by a generous grant from FINRA Education
Foundation.
Academy of Financial Services - October, 2007
Tahira K. Hira 2
Introduction
• What is the next generation of investors in the United States going to look like
• Will the high income diverse investors perceive and behave differently – When investing and– When planning for retirement
• What will be the effects of these differences
Academy of Financial Services - October, 2007
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Objectives
• Survey– Focus on high income investors– Includes Whites, Blacks, Hispanics, and Asians
• Research Topics– Risk tolerance level– Investor confidence– Retirement confidence
Academy of Financial Services - October, 2007
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Procedures• National Random Sample
– Sample 4,1410– Targeted geographical areas wit Av. households incomes
of $100,000 and – high concentration of minorities - 30%
• Data Collection– 911 households agreed to participate– CCSM conducted phone interviews between 0/05 and 2/06 – Average phone interview - 22 minutes– Response rate of 22%
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Descriptive StatisticsVariable White Black Asian Hispanic
Full-Time Employment 74.3% 77.8% 80.0% 78.3%
Occup. Professional 51.6% 40.9% 42.9% 31.9%
Bachelor & Masters 67.0% 65.3% 75.7% 56.5%
Married 89.6% 84.7% 95.7% 88.4%
Male 66.4% 48.6% 65.7% 65.2%
Age 48.8 47.1 46.1 45.4
Household Size 3.36 3.65 3.66 3.61
Income ($) 128,900 119,434 138,426 120,746
Debt ($) 189,740 110,554 326,343 150,659
Academy of Financial Services - October, 2007
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Risk Tolerance: Measure
“Are you willing to take ---
1 = substantial financial risks to earn substantial returns
2 = above average risks for above average returns
3 = average risks for average returns
4 = below average risks for below average returns
5 = or no risk at all?”
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Risk Tolerance: ResultsPercentage Responding "Agree" or "Strongly Agree"
Risk Threshold White Black Asian Hispanic
High Risk 45 42 46 30
Average Risk 46 42 37 52
Low Risk 9 17 17 17
*Chi-square statistic is significant at the 10% level.
Academy of Financial Services - October, 2007
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Risk Tolerance: Regression Logit Regression of Risk Threshold (High Risk = 1, Low is 0)
Selected Demographic Coefficients
Variable Coefficient p-value
Age -.056 0.108*
Household Size 0.15 0.241
Divorced 0.288 0.685
Widowed -0.898 0.286
Single/Never Married -0.926 0.176
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Risk Tolerance: RegressionLogit Regression of Risk Threshold (High Risk = 1)
Education Coefficients (Less than High School omitted)
Variable Coefficient p-value
High School Diploma .948 0.516
Some College 1.79 0.202
Bachelors Degree 2.22 0.121
Masters Degree 2.43 0.095
PhD, MD, DDS, etc. 3.42 0.028
Investment Strategy -.332 0.002
Academy of Financial Services - October, 2007
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Risk Tolerance: Regression
Logit Regression of Risk Threshold (High Risk = 1)
Race and Ethnicity Coefficients (White omitted)
Variable Coefficient p-value
Black -.946 0.062
Asian -1.83 0.000
Hispanic -1.30 0.005
Academy of Financial Services - October, 2007
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Risk Tolerance: Regression
Logit Regression of Risk Threshold (High Risk = 1)
Income Coefficients
Variable Coefficient p-value
Income .112 0.014
Net worth -.00000006 0.792
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Predictors of Risk Tolerance:
• Demographics– Age (negative)– Race (white)– Income (positive)– Education (positive)
• Follow consistent investment strategy (negative)
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Investor Confidence-Measure
Tell me “whether you strongly disagree, disagree, agree, or strongly agree with each of statement”
• I am confident about my ability to invest• I worry about the outcome of my investments• I am knowledgeable about investing
Academy of Financial Services - October, 2007
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Investor Confidence: Results
Percentage Responding "Agree" or "Strongly Agree"
Confidence Indicators White Black Asian Hispanic
Knowledgeable About Investing***
62 66 71 65
Confident About Investment Ability*
62 60 77 68
Worry About Outcome of Investments***
54 49 60 50
Chi-square test: * indicates 99% confidence; *** indicates 99% confidence
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Investor Confidence: MalesPercentage Responding "Agree" or "Strongly Agree"
(Percentage Male-to-Female Difference)
Confidence Indicators White Black Asian Hispanic
Knowledgeable About Investing
65(+3)
76(+10)
79(+8)
70(+5)
Confident About Investment Ability
67(+5)
69(+9)
78(+1)
68(-0)
Worry About Outcome of Investments
44(-10)
59(+10)
64(+4)
51(+1)
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Retirement Confidence- Measure
“Tell me whether you strongly disagree, disagree, agree, or strongly agree with each of the following statements”
• I maximize contributions to my retirement account• I have a clear idea of my financial needs during retirement• I am confident I will be financially secure
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Retirement Confidence: ResultsPercentage Responding "Agree" or "Strongly Agree"
Confidence White Black Asian Hispanic
I maximize contributions to retirement account***
75 70 83 75
I have a clear idea of my financial needs during retirement***
72 73 70 71
I am confident I'll be financially secure***
81 89 86 86
Chi-square Test: * indicates 99% confidence; *** indicates 99% confidence
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Summary: Risk Tolerance
• Differences– Minorities (including Asians) tend to be less risk tolerant
than whites– Marital status, household size, and gender did not
influence risk thresholds• Similarities
– Higher income increased risk tolerance.– Age decreased risk tolerance
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Summary: Investor Confidence
• New Findings– Minorities are generally at least as confident as whites
…especially Asians• Similarities
– Men claim to be…more knowledgeable about investing…confident…but worry more often (for minorities)
• Differences– Gender effects tend to be strongest for whites
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Summary: Retirement Confidence
• New Findings– Asians are more likely to maximize contributions to their
retirement accounts• Differences
– Minorities do not exhibit lower retirement confidence levels
• Similarities– Overall levels of retirement confidence are high among all
ethnic and racial groups
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Implications• Minorities being less risk tolerant may imply greater
wealth inequalities (in the long run)– “ we should help target groups who are under
investing”• Minority females are less confident investors
– “we should target education programs to women”• Favorable outlook for the well-being during retirement for
high net-worth minorities and whites
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Questions and Answers
Dr. Tahira K. Hira
Iowa State University
515.294.2042
www.eng.iastate.edu/tkhira
This work was made possible by a generous grant from FINRA Education Foundation