2013 Conference

Financial Services

Financial Services

In this paper, we use canonical correlation analysis and data from the 2010 wave of the Household, Income, and Labour Dynamics in Australia (HILDA) survey to investigate financial risk-taking in Australia. This is an important concern because knowledge of financial risk-taking has important implications for, among other things, consumer wellbeing, financial planning, and retirement incomes policy. We examine the relationships between a range of alternative proxies commonly used to represent financial risk-taking, including self-reported risk-taking attitudes and direct stock and business ownership, and a set of personal attributes, including age, education, sex, household structure, household income, and net assets. The results indicate that the three measures are strongly representative of financial risk-taking. However, the ranking of canonical loading indicates that direct share ownership followed by self-reported risk attitude is respectively the best and second-best indicators of financial risk-attitudes. In terms of the demographic and socioeconomic factors associated with financial risk-taking, the three variables with the highest loading are net assets (0.868), household income (0.514) and education (0.469). Similarly, the negative loadings are consistent with the literature, in that increasing age (-0.111), being female (-0.085), and having children or being in a lone person household (-0.417) contribute to an aversion to financial risk-taking. Interestingly, age and gender each only account for less than one percent of the observed variation in financial risk-taking.