Marriage, children, houseownership and CPF on risk aversion in Singapore.

Abstract

This study investigates the impact of four life-defining events: marriage, presence of child, homeownership and usage of cash and Central Provident Fund (CPF) for investments on risk aversion of individuals. By adopting a scenario-based approach to study how these events change attitudes towards risk, we find that risk aversion significantly increases after marriage and the arrival of first child. We also find that risk aversion decreases after the housing loan is fully paid off.

Our paper is a pioneering research into investigating the differences in risk aversion between using CPF and Cash for investments. Due to differences in liquidity characteristics between CPF and cash where CPF is illiquid in nature and is unavailable for present consumption of goods and services, using CPF for investments draws a change in investment attitudes as compared to cash. Our findings show that individuals perceive themselves to display lesser risk aversion and to prefer less conservative portfolio mix when using CPF instead of cash for investments.

In this paper, we also find that females are more risk averse and age does have significant impacts on risk aversion. Meanwhile, our study observes that income and educational attainment exhibit no significant impact on financial risk aversion.