Invest As I Say, Not As I Do? Gender Dif-ferences In Financial Risk Preferences

Abstract

This paper examines gender differences in stated versus observed financial risk preferences.  The responses of women versus men to a question regarding financial risk preferences are compared to the proportion of risky assets held in their portfolios using data from the 1995 Survey of Consumer Finances. The data show that women are more likely to express an unwillingness to take financial risks.  Stated financial risk preferences are found to be consistent with observed risk preferences at the ordinal, but not the quantitative, level.  Contradicting their stated risk preferences, risky assets constitute, on average, one-third of the financial assets of households that indicate they are unwilling to take any financial risks. Financial planners and advisers frequently use a client’s expressed willingness to take on risk as an important determinant in asset allocation recommendations. Consistent gender differences in these responses, in addition to inconsistencies between the client’s stated risk preferences and observed portfolio allocation, may lead advisers to make inappropriate recommendations.