1. Cultural Difference: Investment Attitudes and Behaviors of High Income Americans Tahira K. Hira – Iowa State University 515.294.2042 tkhira@iastate.edu Caezilia Loibl – Ohio State University Tom Schenk Jr. – Iowa State University * This work was made possible by a generous grant from FINRA Education Foundation.

2. Academy of Financial Services - October, 2007 Tahira K. Hira 2 Introduction What is the next generation of investors in the United States going to look like Will the high income diverse investors perceive and behave differently –When investing and –When planning for retirement What will be the effects of these differences

3. Academy of Financial Services - October, 2007 Tahira K. Hira 3 Objectives Survey –Focus on high income investors –Includes Whites, Blacks, Hispanics, and Asians Research Topics –Risk tolerance level –Investor confidence –Retirement confidence

4. Academy of Financial Services - October, 2007 Tahira K. Hira 4 Procedures National Random Sample –Sample 4,1410 –Targeted geographical areas wit Av. households incomes of $100,000 and – high concentration of minorities - 30% Data Collection –911 households agreed to participate –CCSM conducted phone interviews between 0/05 and 2/06 –Average phone interview - 22 minutes –Response rate of 22%

5. Academy of Financial Services - October, 2007 Tahira K. Hira 5 Descriptive Statistics VariableWhiteBlackAsianHispanic Full-Time Employment74.3%77.8%80.0%78.3% Occup. Professional51.6%40.9%42.9%31.9% Bachelor & Masters67.0%65.3%75.7%56.5% Married89.6%84.7%95.7%88.4% Male66.4%48.6%65.7%65.2% Age48.847.146.145.4 Household Size3.363.653.663.61 Income ($)128,900119,434138,426120,746 Debt ($)189,740110,554326,343150,659

6. Academy of Financial Services - October, 2007 Tahira K. Hira 6 Risk Tolerance: Measure “Are you willing to take --- 1 = substantial financial risks to earn substantial returns 2 = above average risks for above average returns 3 = average risks for average returns 4 = below average risks for below average returns 5 = or no risk at all?”

7. Academy of Financial Services - October, 2007 Tahira K. Hira 7 Risk Tolerance: Results Percentage Responding "Agree" or "Strongly Agree" Risk ThresholdWhiteBlackAsianHispanic High Risk45424630 Average Risk46423752 Low Risk917 *Chi-square statistic is significant at the 10% level.

8. Academy of Financial Services - October, 2007 Tahira K. Hira 8 Risk Tolerance: Regression Logit Regression of Risk Threshold (High Risk = 1, Low is 0) Selected Demographic Coefficients VariableCoefficientp-value Age-.056 0.108* Household Size0.150.241 Divorced0.2880.685 Widowed-0.8980.286 Single/Never Married -0.9260.176

9. Academy of Financial Services - October, 2007 Tahira K. Hira 9 Risk Tolerance: Regression Logit Regression of Risk Threshold (High Risk = 1) Education Coefficients (Less than High School omitted) VariableCoefficientp-value High School Diploma.948 0.516 Some College1.790.202 Bachelors Degree2.220.121 Masters Degree2.430.095 PhD, MD, DDS, etc.3.420.028 Investment Strategy-.3320.002

10. Academy of Financial Services - October, 2007 Tahira K. Hira 10 Risk Tolerance: Regression Logit Regression of Risk Threshold (High Risk = 1) Race and Ethnicity Coefficients (White omitted) VariableCoefficientp-value Black-.946 0.062 Asian-1.830.000 Hispanic-1.300.005

11. Academy of Financial Services - October, 2007 Tahira K. Hira 11 Risk Tolerance: Regression Logit Regression of Risk Threshold (High Risk = 1) Income Coefficients VariableCoefficientp-value Income.112 0.014 Net worth-.000000060.792

12. Academy of Financial Services - October, 2007 Tahira K. Hira 12 Predictors of Risk Tolerance: Demographics –Age (negative) –Race (white) –Income (positive) –Education (positive) Follow consistent investment strategy (negative)

13. Academy of Financial Services - October, 2007 Tahira K. Hira 13 Investor Confidence-Measure Tell me “whether you strongly disagree, disagree, agree, or strongly agree with each of statement” I am confident about my ability to invest I worry about the outcome of my investments I am knowledgeable about investing

14. Academy of Financial Services - October, 2007 Tahira K. Hira 14 Investor Confidence: Results Percentage Responding "Agree" or "Strongly Agree" Confidence IndicatorsWhiteBlackAsianHispanic Knowledgeable About Investing*** 62667165 Confident About Investment Ability* 62607768 Worry About Outcome of Investments*** 54496050 Chi-square test: * indicates 99% confidence; *** indicates 99% confidence

15. Academy of Financial Services - October, 2007 Tahira K. Hira 15 Investor Confidence: Males Percentage Responding "Agree" or "Strongly Agree" (Percentage Male-to-Female Difference) Confidence IndicatorsWhiteBlackAsianHispanic Knowledgeable About Investing 65 (+3) 76 (+10) 79 (+8) 70 (+5) Confident About Investment Ability 67 (+5) 69 (+9) 78 (+1) 68 (-0) Worry About Outcome of Investments 44 (-10) 59 (+10) 64 (+4) 51 (+1)

16. Academy of Financial Services - October, 2007 Tahira K. Hira 16 Retirement Confidence- Measure “Tell me whether you strongly disagree, disagree, agree, or strongly agree with each of the following statements” I maximize contributions to my retirement account I have a clear idea of my financial needs during retirement I am confident I will be financially secure

17. Academy of Financial Services - October, 2007 Tahira K. Hira 17 Retirement Confidence: Results Percentage Responding "Agree" or "Strongly Agree" ConfidenceWhiteBlackAsianHispanic I maximize contributions to retirement account*** 75708375 I have a clear idea of my financial needs during retirement*** 72737071 I am confident I'll be financially secure*** 818986 Chi-square Test: * indicates 99% confidence; *** indicates 99% confidence

18. Academy of Financial Services - October, 2007 Tahira K. Hira 18 Summary: Risk Tolerance Differences –Minorities (including Asians) tend to be less risk tolerant than whites –Marital status, household size, and gender did not influence risk thresholds Similarities –Higher income increased risk tolerance. –Age decreased risk tolerance

19. Academy of Financial Services - October, 2007 Tahira K. Hira 19 Summary: Investor Confidence New Findings –Minorities are generally at least as confident as whites …especially Asians Similarities –Men claim to be … more knowledgeable about investing …confident …but worry more often (for minorities) Differences –Gender effects tend to be strongest for whites

20. Academy of Financial Services - October, 2007 Tahira K. Hira 20 Summary: Retirement Confidence New Findings –Asians are more likely to maximize contributions to their retirement accounts Differences –Minorities do not exhibit lower retirement confidence levels Similarities –Overall levels of retirement confidence are high among all ethnic and racial groups

21. Academy of Financial Services - October, 2007 Tahira K. Hira 21 Implications Minorities being less risk tolerant may imply greater wealth inequalities (in the long run) –“ we should help target groups who are under investing” Minority females are less confident investors –“we should target education programs to women” Favorable outlook for the well-being during retirement for high net-worth minorities and whites

22. Academy of Financial Services - October, 2007 Tahira K. Hira 22 Questions and Answers Dr. Tahira K. Hira Iowa State University 515.294.2042 tkhira@iastate.edu www.eng.iastate.edu/tkhira This work was made possible by a generous grant from FINRA Education Foundation