Choice of Retirement Funds in Chile: Are Chilean Women More Risk Averse than Men?

Abstract

This study examined the investment decisions of women and men in Chile who were contributing to Chile’s mandatory defined contribution (DC) retirement plan, using a large survey of participants (2782 people) conducted in 2009 by Chile’s Subsecretariat of Social Protection. The basic research question was whether Chilean women were more risk averse in their retirement investment decisions than Chilean men. Chile’s retirement plan offers a default plan for those who do not want to manage their funds. For those wishing to manage their investments, it offers five funds varying in risk from an all bond fund to a fund that is primarily stocks. There was no significant difference in the percentage of men and women choosing the default funds. We used probit analysis to determine what demographic factors affected the choice of the default fund, and found that younger people and men with less education and less income were more likely to choose the default; only age was significant for women. We found no significant gender differences in the fund choices of active investors. We conducted linear regression analysis by gender, where the dependent variable was the fund, with fund 1 having the lowest risk and fund 5 having the highest risk. We found that that the risk taking decreased with age and increased with financial knowledge, psychological risk tolerance, income and unemployment. Chilean women and men seemed similar in their investment decisions.

Appendices

Appendix 1

Table 8 Maximum and minimum variable return assets permitted by fund

Appendix 2. Questions Related to Basic Financial Knowledge

• 1. If there exists a 10 % probability, how many of 1000 persons will contract a disease?

• 2. Five people win a prize of 2 million. How much will each one receive?

• 3. You have $100 in a savings account with a 2 % annual interest rate. How much will you have at the end of 5 years?

• 4. You have $200 in a savings account. The account accumulates 10 %. How much will you have in the account at the end of 2 years?

• 5. If the AFP “A” had a profitability of 15 % the past year and the AFP “B” had a profitability of 20 %, which AFP will have the greater profitability next year?

• 6. You possess a savings account that delivers interest of 1 % annually and you know that the rate of inflation is 2 % annually. After 1 year you will be able to buy….?

• 7. “To buy shares of one company is less risky than to use the same amount of money to buy various shares of different companies”. True or False.

The following are the questions in the original Spanish.

• 1. Si existe un 10 % de probabilidad ¿cuántas personas de 1.000 contraerían la enfermedad?

• 2. 5 personas ganan un premio de dos millones, ¿cuánto recibiría cada una?

• 3. Ud. tiene $100 en una cuenta de ahorro, a una tasa de 2 % anual ¿cuánto tendrá al término de estos 5 años?

• 4. Ud. tiene $200 en una cuenta de ahorro. La cuenta acumula 10 por ciento ¿Cuánto tendrá en la cuenta al cabo de 2 años?

• 5. Si una AFP “A” tuvo rentabilidad de 15 % el año pasado, y la AFP “B” tuvo una rentabilidad de 20 % ¿cuál AFP tendrá la mayor rentabilidad el próximo año?

• 6. Ud. posee $100 en una cuenta de ahorro, la que entrega un interés de un 1 % anual y Ud. sabe que la tasa de inflación es de 2 % anual. Después de un año usted podrá comprar……

• 7. “Comprar una acción de una empresa es menos riesgoso que comprar con el mismo dinero varias acciones de distintas empresas”, Verdadero o falso.