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Source:
John Grable, 785-532-1486, jgrable@k-state.edu
News release prepared by: Jennifer Newberry, 785-532-6415
Thursday,
April 13, 2006
K-STATE
PROFESSOR CONDUCTS KANSAS-ORIENTED STUDY ASSESSING FINANCIAL RISK
TOLERANCE
MANHATTAN
-- A study by a Kansas State University professor has found
that people are good at assessing their risk tolerance when it comes
to their finances -- but that they could do better.
Risk
tolerance means how much risk a person is able, or tolerant, to
take, according to John Grable, an associate professor of family
studies and human services with K-State's personal financial planning
program.
The
risk tolerance research performed by Grable and colleagues received
the best financial planning paper award at a recent conference in
Baltimore by the American Council on Consumer Interests. The award
was sponsored by the Certified Planner Board of Standards.
Grable's
study looked at how well people can advance their own risk tolerance,
something of importance when making decisions about retirement.
People determine their form of investment based on an assessment
of their own risk tolerance, he said.
Participants
from Abilene, Lawrence and Manhattan were asked to assess their
own risk tolerance and were given a standardized risk questionnaire.
Researchers also looked at a person's self-assessment of his or
her ability to take risks and compared it to the financial portfolios
the person actually held.
Age
and gender differences were present in the results, Grable said.
"Men
tended to have a higher financial risk tolerance than women,"
he said. "Those with more education and more annual house income
also were more risk tolerant."
A
surprising factor was the fact that older generations tended to
have a higher risk tolerance than younger people -- something many
would think would be the opposite, Grable said.
"What
we're finding is that with age comes knowledge," he said. "The
more knowledgeable you are about personal financial issues, the
more risk tolerant you are."
Gained
personal experience can also be beneficial, Grable said. Those who
grew up during the Great Depression tend to save money and will
typically invest in safe, secure, federally guaranteed types of
investments. Those who grew up in the '80s and '90s will typically
invest in the stock market, which can fluctuate, he said.
Grable
recommends that older generations invest conservatively because
they don't have as much time to recoup a financial loss, while younger
generations have more time to recover. However, Grable said that
does not mean older generations should stay completely away from
the stock market. Instead, he recommends they keep a well-balanced
financial portfolio.
Younger
generations should take a personal finance course and read books
on personal financial issues to learn as much as possible, Grable
said.
"Again,
with knowledge comes increased risk tolerance," he said. "That
is really one of the key factors -- the more knowledge you gain,
the more secure you feel when making a risky decision."
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