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Question 8: Household Composition
5.2.2. Objective 1: To identify the factors that indicates risk aversity Preferences
In order to explore the factors that indicate risk aversity, in terms of the preference of strategies, the following variables were investigated:
• whether the investment strategy of the respondents is based on attitude towards risk and trust of a broker (Question 10);
• the preference for either stable or volatile shares (Question 12);
• the preference for stable, consistent long term returns (Question 19); and
• the preference for volatile, risky, short-term investments (Question 20).
Inferential statistical tests (Chi-square, Kendall's tau, Mann-Whitney U and Wilcoxin-W) were used to analyse the above variables associated with the preferences of the respondents in conjunction with each of the demographic variables. The tests revealed the following:
• none of the variables were significantly associated with gender;
• none of the variables were significantly associated with the population groups;
• question 10 (I would rather invest on my own than use an investment broker) was significantly related to the vocation of the respondents.
Respondents who were employed by corporate companies disagree more
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(they prefer to use a broker) than those employed by government (who agree more, meaning they prefer to invest on their own) and own employed respondents (who would rather use a broker and disagree to a lesser extent);
• statement 10 was also the only question where there was significance related to age, in that respondents above the age of 30 disagree more (prefer to use brokers) than those 30 years or younger;
• none of the variables were significantly associated with the sources of income of the respondents' household; and
• in question 12 (prefer investing in the shares of a private business to that of a public company), smaller households were more inclined to choose options 6 to 10 (than larger households), in that they preferred investing in (risky) shares. Households of size 5 or more choose options 1 to 5 and were slightly less likely (than those consisting of four or less people) to invest on the property market.
Expectations:
In light of the different expectations of the investors and the effect on their risk tolerance, the following variables were chosen to form part of the study:
• whether the investor wants to have direct control over the vehicle of risk - in terms of preference for either stable or volatile returns (Question 12); and
• whether the investor has a need for stable guaranteed returns regardless of return rate (Question 13).
The above variables were analysed with each of the demographic variables to understand how their expectations could be factors that indicate risk aversion of the respondents. The results of the inferential statistical tests are described below:
• none of the variables were significantly associated with gender;
• none of the variables were significantly associated with population group;
• none of the variables were significantly associated with job;
• none of the variables was significantly associated with source of income;
• question 12 (I prefer to invest in the shares of a private company than that of a public company) was significantly associated with size of the household.
Respondents from smaller size households (3 or less persons) choose
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options 6 to 10 and were more likely (than households with size 4 or more people) to disagree with this preference;
• none of the variables were significantly associated with age; and
• none of the variables were significantly associated with income.
Objectives:
Concerning the objectives of the investment decisions as factors of risk, the following variables were examined:
• whether investment is necessary for the investor to secure liability (Question 14);
• whether investment is undertaken by the investor to compensate for potential risk (Question 15);
• whether the investment is a compulsory requirement for the investor, for example, to qualify for a home loan (Question 16); and
• whether the long term goal of the investor is to increase or decrease investment and related risk (Question 21).
The investment strategy data was analysed using the above variables in conjunction with the demographic variables to understand the objective factors that affect risk tolerance of the respondents. Statistical inferential tests revealed the following:
• none of the variables were significantly associated with respondent gender;
• none of the variables were significantly associated with respondent population group;
• none of the variables were significantly associated with respondent jobs;
• only question 16 (I would not invest in a pension fund if it were not compulsory at my place of work) was significantly associated with source of income. Respondents in the "salary only" and "other not salary" categories disagree more strongly than those in the "salary and other" category;
• only question 21 (As you get older, are you going to spend more or less on your investments?) was significantly associated with size of household.
Respondents with smaller size households (4 persons or less) were more inclined (than those with 5 or more people) to invest more as they got older;
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• only Q21 (As you get older, are you going to spend more or less on your investments?) was significantly associated with age. As proportion of the respondents who choose options 1 and 2 got fewer with the increase in age;
and
• only question 21 (spending more or less on investments when you get older) was significantly associated with income. The higher the income of the respondent, the more they were inclined to reduce their investment amount.
Constraints:
With reference to the constraints as factors in making decisions that affect the risk aversity, the following variables were investigated:
• how decision-making power affects the investor's choice of risk when their own preferences are limited (Question 9);
• whether the limitation of personal responsibilities of the investor affect the propensity to invest (Question 22);
• how does the constraint of income affect the investor's degree / attitude of risk (Question 24);
• how does the constraint of the investor's job impact on the investment amount (Question 25); and
• what is the effect of the constraint of income of the investor on the investment amount (Question 26)?
The demographic data was analysed in terms of the variables associated with the constraints of the respondents using inferential statistical tests. The following were revealed by the tests:
• question 9 (If I made my investment decisions on my own, I would take greater risks) was significantly associated with gender. Males were more likely to make their own investment decisions than females. Question 24 is also significantly associated with gender and the responses implied that males would be less cautious than females if their incomes increased;
• none of the variables was significantly associated with population group;
• question 25 (If I got a new job, I would increase the number of my investments) was significantly associated with source of income.
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Respondents in the "other not salary" category were more likely (than the other two categories) not to increase investments with a new job;
• question 26 (increasing investment with doubling income) was significantly associated with size of household. Respondents from smaller household size (3 or less people) were more unlikely (than those from households with 4 or more persons) to increase investment with doubling of their income;
• question 26 was significantly associated with respondent age. Respondents were more inclined to invest more as they got older; and
• question 26 was significantly associated with respondent income.