Iowa State's Hira leads national study on age differences in investment behavior

AMES, Iowa -- Given the country's recent financial crisis, risk has become an even more critical consideration to investors. And according to a national study led by an Iowa State University personal finance professor, the youngest investors were more likely than older investors to take above-average risk, but they were also more likely to have increased the amount they invested over the previous 12 months.

The study compared investment behavior across three age groups -- Gen Xers and Millennials (ages 20-39), Baby Boomers (ages 40-59) and seniors (age 60 and older).

"Younger people in our study were more willing to take risks. This is not a surprising finding; they are at the right age to do so," said Tahira Hira, a professor of personal finance and consumer economics in the Department of Human Development and Family Studies at Iowa State and lead author of the study. "They have a longer time horizon (than the older groups). They have time to ride out the lows and highs of the market."

By comparison, the study found that the majority of seniors preferred taking below-average to average investment risk, and were the least likely to have increased the amount they had invested in the previous 12 months.

Almost all Gen Xers/Millennials and Baby Boomers (94 percent) saved money during the six months prior to their interviews, but slightly fewer seniors (84 percent) saved money.

"When you're a senior, you are at a stage of your life cycle when you do not have to save to accumulate wealth," said Hira, who serves on President Bush's Advisory Council on Financial Literacy. "You are more likely to draw down savings made over the years.

"Younger folks have to save to for their short- and long-term goals to build their nest," she said. "They continue to save and build assets for long-term goals, such as retirement. Seniors are behaving as expected, since they did the saving for their goals when they were younger. They are expected to live off of their assets they built over the years for this purpose."

Study surveyed nearly a thousand people nationally

Whitney Rock, an Iowa State research assistant, and Czilia Loibl, an assistant professor at The Ohio State University, collaborated with Hira on the study, which analyzed data gathered from telephone interviews of 909 subjects nationally, conducted from October 2005 through February 2006. The study targeted higher income households ($75,000 or more) because of the likelihood that there would be a greater percentage of investors in those households.

While the three age groups consider investment risk differently, the study found that the majority of the investors in all three groups are reluctant to use personal computers and the Internet as sources of information for their investments.

"They're nervous about doing investment research and making investments online," Hira said. "We were surprised to learn this about investors of all ages. We expected younger respondents to show a higher level of comfort with Internet use. More and more information and educational materials are being posted on the Internet by various entities. Increasingly more businesses are inviting their customers to use services available on the Web. However, actual use of that information related to making investments and financial decisions seems to be very limited at this point in time."

Hira says people are reluctant to make investment decisions online for two reasons.

"We found that lots of people are still not comfortable with the technology when it comes to investing," she said. "There's so much information on the Web that they feel intimidated or overwhelmed by it, and they don't feel secure making investment decisions on the Internet."

Most married couples consulting on investments

Relationship research often cites money as a source of conflict for couples, yet a majority of the respondents (57 percent) reported making investment decisions jointly with their spouse or partner. The proportion of respondents who made investment decisions jointly was higher among Gen Xers and Millennials (65.6 percent), and lowest among Seniors (45.2 percent). Only 27.9 percent of investors made those decisions alone.

"Gender differences were also notable," Hira said. "Female investors are more likely than males to say that they made investment decisions formally with their spouses/partners."

This study was funded by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation Grants program.

Hira was a presenter and one of four facilitators earlier this month at the Financial Education and Financial Literacy Research Symposium, sponsored by the U.S. Department of the Treasury, in Washington, D.C. She had worked with both the Treasury and U.S. Department of Agriculture in planning the symposium, which was designed to develop a research agenda for financial education over the next 10 years that will be submitted to policy makers, grant makers and researchers in the field.