Assessing Financial Risk Tolerance Level of Individual Investors: Do Demographic Factors Matter?

Abstract

The paper investigates the influence of demographic factors such as gender, age, marital status, level of education, occupation, and income on the financial risk tolerance of individual investors in Nigeria. A survey research design was adopted and all the staff, students, and owners of business centers in the University of Benin who have invested in shares in the Nigerian Stock Market constitute the population of the study. The study targeted a convenient sample of 70 respondents through a snowball sampling technique (i.e., the first respondent was asked to recommend a colleague or friend who has invested in shares in the Nigerian Stock Market until the required sample is gotten). Out of the 70 questionnaires administered 60 were found usable. Analysis of data was carried out using a t-test, Analysis of variance (ANOVA), and regression. Statistical Package for Social Sciences (SPSS) version 22 was used to conduct all the analyses. The study found that the majority of respondents (investors) belong to the average/moderate risk tolerance group. Results of the t-Test and ANOVA analyses indicated that while there was a significant difference in financial risk tolerance levels according to gender and income, there were not meaningfully different in financial risk tolerance levels as to the age, marital status, educational level, and occupation. The regression analysis reveals that three demographic variables (gender, marital status, and income) significantly affect the financial risk tolerance level of individual investors. The study, therefore, recommends among others that financial service providers need to frame their products according to investors' risk-taking capacity which definitely will increase market efficiency as well as investors' confidence.