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Examining the Association Between Financial Education and Financial Risk Tolerance

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  • Ashley Tharayil

Abstract

An individual’s financial risk tolerance (FRT) has an important role in their financial decisions. Hence, it is a recent topic of interest. Research shows a strong relationship between financial literacy and risk aversion. Little research, however, has been done investigating the correlation between financial education and FRT. In this paper, it is proposed that financial education and FRT may be positively correlated. Since risk preferences are an innate characteristic and can also be motivated by personal and psychological attributes, the relationship between financial education and FRT may not be causal. Results obtained from analyzing data from the 2021 NFCS dataset through multivariate analysis show that financial education courses are positively correlated with reporting higher measures of financial risk tolerance for college educated individuals and for financially low literate individuals who have not attended college. These results hold even after controlling for financial literacy and a myriad of other background variables. JEL Codes: D14, G00, D81, A20

Suggested Citation

  • Ashley Tharayil, 2024. "Examining the Association Between Financial Education and Financial Risk Tolerance," The American Economist, Sage Publications, vol. 69(1), pages 59-79, March.
    • Handle: RePEc:sae:amerec:v:69:y:2024:i:1:p:59-79
    DOI: 10.1177/05694345231186082
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G00 - Financial Economics - - General - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General

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