Advertisement

Journal of Family and Economic Issues

, Volume 24, Issue 3, pp 257–279 | Cite as

Effects of Marriage and Children on Financial Risk Tolerance: A Synthesis of Family Development and Prospect Theory

  • Barbara Chaulk
  • Phyllis J. Johnson
  • Richard Bulcroft
Article

Abstract

Family development and prospect theory were used as a framework to predict variability in individuals' subjective financial risk tolerance within distinct family structures. Gender, age, and income were expected to interact with the main effects of family structure (marital status and children). Theory-generated hypotheses were examined in Study 1 (data from university housing respondents, n = 76) and Study 2 (the 1998 Survey of Consumer Finances, n = 4,305). One family structure main effect (child presence) was significant for investment risk tolerance in both studies. Family structure interactions (marital status × age and child × income) were significant for employment risk (Study 1), and child × age was significant for investment risk in Study 2.

family development prospect theory risk tolerance 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Aldous, J. (1990). Family development and the life course: Two perspectives on family change. Journal of Marriage and the Family, 52, 571–583.Google Scholar
  2. Bajtelsmit, V., & Bernasek, A. (1996). Why do women invest differently than men? Financial Counseling and Planning, 7, 1–10.Google Scholar
  3. Barsky, R., Juster, F., Kimball, M., & Shapiro, M. (1997). Preference parameters and behavioral heterogeneity: An experimental approach in the Health and Retirement Study. The Quarterly Journal of Economics, May, 537–579.Google Scholar
  4. Cowan, C. P., & Cowan, P. A. (1992). When partners become parents: The big life change for couples. New York: Basic Books.Google Scholar
  5. Cutler, N. E. (1995). Three myths of risk tolerance: What clients are not telling. Journal of the American Society of CLU & ChFC, 49, 33–38.Google Scholar
  6. Cutler, N. E., & Devlin, S. J. (1996). Financial literacy 2000. Journal of the American Society of CLU & ChFC, July, 32–37.Google Scholar
  7. Donkers, B., & van Soest, A. (1999). Subjective measures of household preferences and financial decisions. Journal of Economic Psychology, 20, 613–643.Google Scholar
  8. George, L. K. (1999). Financial gerontology. Journal of Financial Service Professionals, 53(2), 28–31.Google Scholar
  9. Grable, J. E., & Joo, S. (1997). Determinants of risk preference: Implications for family and consumer science professionals. Financial Economics and Resource Management Biennial, 19–24.Google Scholar
  10. Grable, J. E., & Lytton, R. H. (1998). Investor risk tolerance: Testing the efficacy of demographics as differentiating and classifying factors. Financial Counseling and Planning, 9, 61–73.Google Scholar
  11. Grable, J. E., & Lytton, R. H. (2001). Assessing the concurrent validity of the SCF risk tolerance question. Financial Counseling and Planning, 12, 43–54.Google Scholar
  12. Hanna, S. D., & Chen, P. (1997). Subjective and objective risk tolerance: Implications for optimal portfolios. Financial Counseling and Planning, 8, 17–26.Google Scholar
  13. Hanna, S. D., Gutter, M. S., & Fan, J. X. (2001). A measure of risk tolerance based on economic theory. Financial Counseling and Planning, 12, 55–60.Google Scholar
  14. Hinz, R. P., McCarthy, D. D., & Turner, J. A. (1997). Are women conservative investors? Gender differences in participant-directed pension investments. In M. S. Gordon, O. S. Mitchell, & M. M. Twinney (Eds.), Positioning pensions for the twenty-first century (pp. 45–66). Philadelphia: University of Pennsylvania Press.Google Scholar
  15. Holzheu, F., & Weidemann, P. M. (1993). Perspectives on risk perception. In B. Ruck (Ed.), Risk is a construct: Perceptions of risk perception (pp. 9–23). Munich: Knesebeck.Google Scholar
  16. Jianakoplos, N. A., & Bernasek, A. (1998). Are women more risk averse? Economic Inquiry, 36(4), 620–630.Google Scholar
  17. Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 42(2), 263–289.Google Scholar
  18. Kerlinger, F. N., & Pedhazur, E. J. (1973). Multiple regression in behavioral research. New York: Holt, Rinehart and Winston.Google Scholar
  19. Klein, D. M., & White, J. M. (1996). Family theories: An introduction. Thousand Oaks, CA: Sage.Google Scholar
  20. Kurzweil, R. (1998). Better never than late. Forbes, November, 46–47.Google Scholar
  21. Leimberg, S. R., Satinsky, M. J., LeClair, R. T., & Doyle, R. J. (1989). The tools and techniques of financial planning (3rd ed.). Cincinnati, OH: The National Underwriter Co.Google Scholar
  22. MacCrimmon, K. R., & Wehrung, D. A. (1985). A portfolio of risk measures. Theory and Decision, 19, 1–29.Google Scholar
  23. MacCrimmon, K. R., & Wehrung, D. A. (1986). Taking risks: The management of uncertainty. New York and London: The Free Press.Google Scholar
  24. Maslow, A. H. (1954). Motivation and personality. New York: Harper & Row.Google Scholar
  25. Mittra, S. (1990). Practicing financial planning: A complete guide for professionals. Englewood Cliffs, NJ: Prentice Hall.Google Scholar
  26. Montalto, C., & Sung, J. (1996). Multiple imputation in the 1992 Survey of Consumer Finances. Financial Counseling and Planning, 7, 133–146.Google Scholar
  27. Morse, W. C. (1998). Risk taking in personal investments. Journal of Business and Psychology, 13(2), 281–288.Google Scholar
  28. Poduska, B. E. (1993). For love & money: A guide to finances & relationships. Pacific Grove, CA: Brooks/Cole Publishing.Google Scholar
  29. Rabin, M., & Thaler, R. H. (2001). Anomalies: Risk aversion. Journal of Economic Perspectives, 15, 219–232.Google Scholar
  30. Rodgers, R. H., & White, J. M. (1993). Family development theory. In P. Boss, W. Doherty, R. Larossa, W. Schumn, & S. Steinmetz (Eds.), Sourcebook of family theories and methods: A contextual approach (pp. 225–254). New York: Plenum.Google Scholar
  31. Schooley, D. K., & Worden, D. D. (1996). Risk aversion measures: Comparing attitudes and asset allocation. Financial Services Review, 5, 87–99.Google Scholar
  32. Statistics Canada (1996). Vancouver Census Data. Retrieved April 30, 2001, from http://www12.statcan.caGoogle Scholar
  33. Sung, J., & Hanna, S. D. (1996). Factors related to risk tolerance. Financial Counseling and Planning, 7, 11–20.Google Scholar
  34. Umiker, W. (1997). Risk taking: A supervisory imperative. The Health Care Supervisor, 16(2), 1–8.Google Scholar
  35. Wang, H., & Hanna, S. D. (1997). Does risk tolerance decrease with age? Financial Counseling and Planning, 8(2), 27–31.Google Scholar
  36. Warner, N., & Cramer, S. (1995). Saving behaviors: First wave of baby boomers. Journal of Consumer Studies and Home Economics, 19, 57–67.Google Scholar
  37. White, J.M. (1991). Dynamics of family development: A theoretical perspective. New York and London: The Guilford Press.Google Scholar
  38. Wong, A., & Carducci, B. J. (1991). Sensation seeking and financial risk taking in everyday money matters. Journal of Business and Psychology, 5, 525–530.Google Scholar
  39. Xiao, J. J., & Anderson, J. G. (1997). Hierarchical financial needs reflected by household financial asset shares. Journal of Family and Economic Issues, 18, 333–355.Google Scholar
  40. Yates, F. J. (1992). Risk-taking behavior. Chichester, England: John Wiley & Sons.Google Scholar
  41. Zhong, L. X., & Xiao, J. J. (1995). Determinants of family bond and stock holdings. Financial Counseling and Planning, 6, 107–114.Google Scholar

Copyright information

© Human Sciences Press, Inc. 2003

Authors and Affiliations

  • Barbara Chaulk
    • 1
  • Phyllis J. Johnson
    • 2
  • Richard Bulcroft
    • 3
  1. 1.Radiation Therapy Program, B C Cancer Agency, Vancouver Cancer AgencyCanada
  2. 2.School of Social Work and Family StudiesUniversity of British ColumbiaVancouverCanada
  3. 3.Department of SociologyWestern Washington UniversityBellingham

Personalised recommendations