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Effects of marriage and children on financial risk tolerance : a synthesis of family development and prospect theory Chaulk, Barbara Jeanne

Abstract

Research has attempted to explain perceptions of financial risk using demographic variables as predictors. This study differed by using family stages to predict an individual's tolerance toward financial decisions that have uncertain outcomes. Within a Family Development Theory and Prospect Theory framework, a novel approach, this study attempted to explain variability in financial risk tolerance for distinct family stages. In addition, gender, age and income were expected to moderate the main effects of marital status and children. Data were collected from respondents (n = 76) who lived in a university housing community and who volunteered to participate in the 1999 Family and Couples Relationship Survey. Two dependent variables, employment risk and investment risk, were analyzed using two parallel multi-stage Ordinary Least Squares Regression procedures. Results supported the theoretical model in the following ways: children have a direct effect on investment risk tolerance, age moderates marital status for employment risk tolerance, and income moderates the effect of children on employment risk tolerance. Moreover, respondents considered employment and investment risk as separate constructs. Findings were seldom consistent across the two dependent variables. A n age x gender effect requires further investigation. Future research should test the theoretical model with a larger and more varied sample. Findings indicate that financial planners and educators may increase their understanding of financial behaviors within families by going beyond demographic data. This study indicates that interactions of demographic variables and family stages have the potential to explain financial risk tolerance beyond what is currently known in the literature.

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