To ponder........ (I have a full copy of the study if anyone is interested)
Conclusion and Implications
Relative risk aversion decreases as people age (i.e., the
proportion of net wealth invested in risky assets increases
as people age) when other variables are held constant.
Therefore, risk tolerance increases with age. Thus, the
constant life-cycle risk aversion hypothesis is not
accepted. These results are contrary to Morin and
Suarez’s (1983, p. 1201) finding that risk aversion
increases with age.
Human capital accounts for a relatively large portion of
net wealth for young people, and financial wealth
accounts for a relatively small portion of their net wealth.
Young people may appear more risk averse since it is
hard for them to endure any short-term investment losses
with limited financial resources. Future human wealth
can not be applied to pay present bills, car loans,
mortgage debts, etc.
Implication for Financial Planning and Education
Educators and planners should not assume that risk
tolerance decreases as people age. Overall, the opposite
seems to be the pattern. Consumers who avoid high
return assets such as stocks should be encouraged to
allocate part of their investments to broadly diversified
stock funds in order to maintain household purchasing
power. As Hanna and Chen (1997) demonstrate,
objective aspects of risk tolerance, such as the investment
horizon, may be more important than subjective aspects
such as risk aversion.