Using the 2007–2009 Survey of Consumer Finances panel data, this study examined changes in perceived and realized risk tolerance after the financial crisis. Households who perceived less risk tolerance were more likely to have reduced their portfolio risk and vice versa. Furthermore, households whose wealth decreased were more likely to perceive less risk tolerance and vice versa. Regression analysis revealed that change in risk tolerance as measured by the change in financial portfolio risk is related to perceived risk tolerance, education, life cycle stage, and employment status. Single households, or those households whose head is less educated, or self-employed or unemployed, may need financial advice to prevent them from reducing their portfolio risk in reaction to a financial crisis.
This document was originally published by the Association for Financial Counseling and Planning Education in the Journal of Financial Counseling & Planning. Copyright restrictions may apply. doi: 10.1891/1052-3073.27.2.265
Schooley, Diane K. and Worden, Debra Drecnik. (2016). "Perceived and Realized Risk Tolerance: Changes During the 2008 Financial Crisis". Journal of Financial Counseling & Planning, 27(2), 265-276.