Risk tolerance and household wealth--Evidence from Chinese households

Abstract

This paper investigates the influence of wealth accumulation on household risk tolerance. We analyze the influence of several household characteristics on risk tolerance using data from the Chinese Household Finance Survey. We further explore the effects of age, personal experience with famine, level of regional trust and income threshold on this relationship. The empirical results indicate the following. First, the accumulation of household wealth can significantly increase household risk tolerance. Second, this relationship weakens with age, and for elderly people, experience with famine offsets this enhancing effect. Third, higher levels of regional trust help increase a household's ability to withstand risks. Fourth, the enhancing effect of income level on household risk tolerance is more significant for high-income families than for low- and middle-income families. Finally, the level of social security does not have a significant impact on a household's risk tolerance. This paper provides a clear understanding of the determinants of risk tolerance and the effects on household risk tolerance.