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Do financial ethics matter in risky asset investment of households? Evidence from Japan

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Abstract

In this study, we examine how financial ethics, defined as an aversive attitude toward financial matters, influence households’ risky asset investments. By using a questionnaire survey on households in Japan, financial ethics are measured on multiple dimensions: psychological attitude toward money, normative attitude toward economic transactions, and unwillingness to disclose financial information. Overall, evidence supports the financial ethics hypothesis that people with a high level of financial ethics are reluctant to invest in risky assets. Particularly, decisions to participate in the stock market are impaired by strong financial ethics. The hypothesis is partly supported for the percentage shares of stock holdings and investment in a broad class of risky assets. Furthermore, our mediation analysis reveals that financial ethics not only directly discourage investment but also have an indirect effect through reduced financial literacy.

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Notes

  1. We use the term “ethics” as a sense of value of favor or disfavor at an affective level, or as a normative perception that a certain action should be taken in a context. Comparable examples in daily life include the ethics that one should act to protect the environment, or the morality that one should respect the elderly as is found in Asian countries.

  2. Another growing body of existing literature has examined the impact of personal ethics (social preference) on sustainable investing [29], [13], [14].

  3. For a general explanation of the advantages and disadvantages of SP and RP, respectively, refer to Louviere et al. [26],Whitehead et al. [37].

  4. Furnham [11], Chapter 5, provides a clear overview of the major literature on developments of money attitude scales.

  5. At the beginning of the questionnaire, we indicated to respondents that the survey was being conducted for research purposes and that individual respondents would not be identified to the researchers.

  6. For the robustness check, we also computed the case of the varimax rotation and obtained almost the same results of the Promax rotation.

  7. Particularly unique to Japan, the full range of public health insurance may be one of the reasons why people do not want to mix economic transactions with medical care.

  8. The questions of Trust and Donation were formulated based on the Global Preferences Survey 2018. See Falk et al. [8].

  9. We further confirm that the marginal effects of financial ethics also exhibit a similar pattern.

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Funding

This research was supported by JSPS KAKENHI [grant numbers 21K01593, 23K01390]; Zengin Foundation for Studies on Economics and Finance [1802]; ISHII Memorial Securities Research Promotion Foundation Research Fund [ISHII-2019-406].

Author information

Authors and Affiliations

  1. Kwansei Gakuin University, 1-1-155, Uegahara, Nishinomiya, Hyogo, 662-8501, Japan

    Hiroyuki Aman

  2. Kansai University, 3-3-35 Yamate-Cho, Suita, Osaka, 564-8680, Japan

    Taizo Motonishi

  3. Hiroshima University of Economics, 5-37-1, Gion, Asaminami, Hiroshima, Hiroshima, 731-0192, Japan

    Chisako Yamane

Authors
  1. Hiroyuki Aman
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  2. Taizo Motonishi
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Correspondence to Hiroyuki Aman.

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Appendix

Appendix

(A) Definition of variables

Dependent variables

Stock investment share

The share of stocks and mutual funds to total financial assets

Risky asset share

The share of risky assets including stocks, mutual funds, foreign currency deposits, bonds and other assets to total financial assets

Stock market participation

The binary variable takes 1 if the respondent holds stocks or mutual funds and 0 otherwise

Risky asset choice

The binary variable takes 1 if the respondent holds risky assets and 0 otherwise

Asset trading frequency

The frequency of financial trading

Q. How often do you currently buy or sell stocks, mutual funds, or other financial products? Please choose the one that comes closest. (1) Almost every day. (2) A few times a week. (3) A few times a month. (4) A few times a year. (5) Almost no trading

Information gathering

The frequency of checking financial information

Q. How often do you currently check economic and financial news? Please choose the one that comes closest. (1) Almost every day. (2) A few times a week. (3) A few times a month. (4) A few times a year. (5) Almost no checking

Independent variables

Financial ethics composite

The total sum of (1) MES 3-factor, (2) Economic Trade Aversion and (3) Financial non-openness after standardized with the mean and standard deviation

(1) MES 3-factor

The sum of 3 factor scores extracted from Money Ethic Scale (MES). (=−Good – Respect + Evil)

 – MES good factor

The factor score labelled as “Good” from factor analysis of MES questions

 – MES respect factor

The factor score labelled as “Respect” from factor analysis of MES questions

 – MES evil factor

The factor score labelled as “Evil” from factor analysis of MES questions

(2) Economic Trade Aversion (ETA)

The sum of binary indicators taking 1 if the economic transaction is “unacceptable” in the four sectors including consumption, medical care, education and public manners, and taking 0 otherwise

Q1. Please choose your opinions on the following actions/transactions of people in society and social systems. (a) Paying money for a pass to ride amusement park attractions immediately without waiting in line. (b) Payment of reward to a medical doctor in addition to the treatment cost. (c) Students receive monetary rewards for higher grades in school. (d) Receipt of a reward for delivering a lost and found item. (1) Acceptable. (2) Unacceptable

(3) Financial non-openness

The sum of four binary indicators taking 1 if the respondent chooses “(3) I do not want to answer” about the financial information on the number of values of household account items including financial assets, real estate, mortgage loans and other liabilities, and 0 otherwise

Q1. Please answer the amount of your household’s assets. (1) A Yen amount. (2) I do not know. (3) I do not want to answer. Note: Q2, Q3, and Q4 ask similar questions with different account items

Financial literacy

The correct answer rate to financial knowledge questions: interest calculation, inflation, mortgage, diversification, foreign exchange, liquidity, and risk. See the Appendix (B)

Education

The academic education background. This takes the higher value for higher education level. (1) Primary or junior high schools, (2) high schools, (3) junior colleges, (4) four-year colleges, (5) graduate school for master programs, (6) graduate school for Ph. D programs. Note: for the levels of (7) “other schools” and (8) “don’t know”, (3) is allocated

Financial job

The binary variable taking 1 if the respondent has experienced in a financial profession: financial institutions (commercial banks, security houses, insurance companies) and financial sections in a company, and taking 0 otherwise

Financial learning

The binary variable taking 1 if the respondent has experienced attending financial lectures or classes held by public institution such as local governments or consumer groups, or financial institutions, and taking 0 otherwise

Time discount

The tendency to discount gains in the distant future as measured by the following three questions

Q1. Choose which is better for you: (1)10,000 yen today. (2)10,400 yen a year from now. Note: Q2 and Q3 ask similar questions with different numerical examples

Risk aversion

The tendency to avoid high-risk options as measured by the following three questions

Q1. There are two urns, A and B, each containing 10 balls. Each ball has a number written on it. You cannot see inside the urns. Now you choose one of the urns and draw a ball at random. You will get points for the number written on the drawn ball. Which urn do you choose? (1) Urn A: 5 balls of 40 points and 5 balls of 32 points. (2) Urn B: 5 balls of 77 points and 5 balls of 2 points. (3) They’re both the same. Note: A figure of urns containing balls is shown. Q2 and Q3 ask similar questions with different numerical examples. Respondents receive rewards based on their results

Loss aversion

The tendency to avoid monetary loss as measured by the following three questions

Q1. There is a gambling game in which a coin is flipped, and you receive 10 thousand yen if the head appears; however, you must pay 10 thousand yen if the tail appears. Do you want to participate in this gambling game? (1) I will participate. (2) I will not participate. Note: Q2 and Q3 ask similar questions with different numerical examples

Sex

This variable takes a value of 1 if the respondent is male and 0 if the respondent is female

Age

Respondent’s age

Income

Respondent’s household annual income (10,000 Yen)

Q. Please choose your household annual income. (1) <3 million yen. [3 million Yen] (2) 3 to <5 million yen. [4 million Yen] (3) 5 to <7 million yen. [6 million Yen] (4) 7 to <10 million yen. [8.5 million Yen] (5) 10 to <15 million yen. [12.5 million Yen] (6) More than 15 million yen [15 million Yen]. Note: Each selected income range is converted to an annual income in the square bracket

Trust

The degree that the respondent trusts other people

Q. Do you believe that people have only good intentions?

Please choose one among 10 scales of 0–10, with 0 being “Totally Disagree” and 10 being “Totally Agree”

(Note: The “10 scales” in the question is our misstatement; the correct number is “11 scales”. However, we believe there is no significant problem with the answer)

Donation

The willingness to donate

Q. Imagine the following situation. Suppose you unexpectedly receive 100,000 yen today. How much of this would you donate to charity? Please answer in an amount between 0 and 100,000 yen

Religion

The binary variable taking 1 if the respondent believes in any religion, and 0 otherwise

(B) Financial literacy questions

Q1. You have a normal savings account with 10,000 yen and an interest rate of 2% per year. If you do nothing to change the balance, how much money will be in the account after 5 years?

1. More than 10,200 yen. 2. Just 10,200 yen. 3. less than 10,200 yen. 4. I do not know.

Q2. Your savings account has an interest rate of 1% per year, and the rate of inflation (the rate at which the cost-of-living increases) is 2% per year. After 1 year, which of the following will you be able to buy with the money in the account?

1. More than you can buy now. 2. The same as you can buy now. 3. Less than you can buy now. 4. I do not know

Q3. When taking out a mortgage, the monthly payment is greater for a 15-year loan than for a 30-year loan, but the total interest paid during the repayment period is less. Is this statement correct or incorrect?

1. Correct. 2. Incorrect. 3. I do not know

Q4. When investing, diversifying in a number of companies is a safer way to obtain returns than investing in a single company. Is this statement correct or incorrect?

1. Correct. 2. Incorrect. 3. I do not know

Q5. When the value of yen increases relative to other currencies, what happens to the yen-denominated value of financial assets held in foreign currency?

1. The value increases. 2. The value does not change. 3. The value decreases. 4. I do not know

Q6. When financial assets are sold quickly, they tend to be sold at lower prices. Which price, real estate or government bond, decreases more in value?

1. Real estate decreases more largely. 2. The decrease is the same. 3. Government bond decreases more largely. 4. I do not know

Q7. Investments that are expected to have high returns tend to also have considerable risks. Is this statement correct or incorrect?

1. Correct. 2. Incorrect. 3. I do not know

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Aman, H., Motonishi, T. & Yamane, C. Do financial ethics matter in risky asset investment of households? Evidence from Japan. IJEPS (2024). https://doi.org/10.1007/s42495-024-00134-2

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