Attitudes Towards Risk and Their Impact on Children

Sue BerginSue Bergin

An investor who is unaccepting of some investment risk limits potential opportunities for significant growth in their portfolio.  Even so, many such investors are satisfied as long as they remain in the black.  An argument of lost opportunity costs falls on deaf ears.  When you, as their advisor, point out that they are limiting their future growth potential, they are ok with it.  But, what if they thought that their risk aversion might have negative consequences for their children.  Might they look differently at their attitudes towards uncertain investments?

shutterstock_59441101A recent U.K. study shows that children of risk-averse parents scored lower on standardized tests.  They were also 1.34% percent less likely to go to college than children of parents who are more accepting of risk. [1]

According to the researchers, risk-averse people by their very nature may be unwilling to make inherently uncertain investments.  For example, they may be not be inclined to fund a private school education because they cannot be assured (guaranteed!) that it will result in greater successes for that child. Put another way, aversion to risk makes a person less likely to invest in their child’s human capital.

The researchers hint at another possible explanation for the phenomenon. They suggest that attitude towards risk reflects cognitive abilities.

For those of us who work with some incredibly bright, risk-averse clients, the first explanation seems more plausible.


[1]Parental Risk Attitudes and Children’s Academic Test Scores:  Evidence from the US Panel Study of Income Dynamics. http://links.mkt3142.com/ctt?kn=34&ms=NTIxMjM4MAS2&r=MTgxMDg2Njg2MjgS1&b=0&j=NTk5OTYzNTMS1&mt=1&rt=0

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s