Cultural Difference:
Investment Attitudes and Behaviors of
High Income Americans
Tahira K. Hira – Iowa State University
515.294.2042 tkhira@iastate.edu
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
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
Tahira K. Hira
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Academy of Financial Services - October, 2007
Objectives
• Survey
– Focus on high income investors
– Includes Whites, Blacks, Hispanics, and Asians
• Research Topics
– Risk tolerance level
– Investor confidence
– Retirement confidence
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Academy of Financial Services - October, 2007
Procedures
• National Random Sample
– Sample 4,1410
– Targeted geographical areas wit Av. households incomes of
$100,000 and
– high concentration of minorities - 30%
• Data Collection
– 911 households agreed to participate
– CCSM conducted phone interviews between 0/05 and 2/06
– Average phone interview - 22 minutes
– Response rate of 22%
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Academy of Financial Services - October, 2007
Descriptive Statistics
Variable
Full-Time Employment
White
Black
Asian
Hispanic
74.3% 77.8%
80.0%
78.3%
Occup. Professional
Bachelor & Masters
Married
Male
Age
Household Size
Income ($)
Debt ($)
51.6% 40.9%
42.9%
31.9%
67.0% 65.3%
75.7%
56.5%
89.6% 84.7%
95.7%
88.4%
66.4% 48.6%
65.7%
65.2%
48.8
47.1
46.1
45.4
3.36
3.65
3.66
3.61
128,900 119,434 138,426 120,746
189,740 110,554 326,343 150,659
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Academy of Financial Services - October, 2007
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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Academy of Financial Services - October, 2007
Risk Tolerance: Results
Percentage 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.
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Academy of Financial Services - October, 2007
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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Academy of Financial Services - October, 2007
Risk Tolerance: Regression
Logit 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
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Academy of Financial Services - October, 2007
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
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Academy of Financial Services - October, 2007
Risk Tolerance: Regression
Logit Regression of Risk Threshold (High Risk = 1)
Income Coefficients
Variable
Coefficient
p-value
Income
Net worth
Tahira K. Hira
.112
0.014
-.00000006
0.792
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Academy of Financial Services - October, 2007
Predictors of Risk Tolerance:
• Demographics
– Age (negative)
– Race (white)
– Income (positive)
– Education (positive)
• Follow consistent investment strategy (negative)
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Academy of Financial Services - October, 2007
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
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Academy of Financial Services - October, 2007
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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Academy of Financial Services - October, 2007
Investor Confidence: Males
Percentage 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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Academy of Financial Services - October, 2007
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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Academy of Financial Services - October, 2007
Retirement Confidence: Results
Percentage 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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Academy of Financial Services - October, 2007
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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Academy of Financial Services - October, 2007
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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Academy of Financial Services - October, 2007
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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Academy of Financial Services - October, 2007
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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Academy of Financial Services - October, 2007
Questions and Answers
Dr. Tahira K. Hira
Iowa State University
515.294.2042
tkhira@iastate.edu
www.eng.iastate.edu/tkhira
This work was made possible by a generous grant from FINRA Education
Foundation
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