The Impact of Demographic Factors on Risk Tolerance: A Case Study of Saudi Arabia

Abstract

The primary objective of this empirical research was to examine potential variations in financial risk tolerance among residents in Saudi Arabia, taking into account their demographic characteristics such as gender, age, education, job experience, monthly income, and geography. This research examines any possible relationship between demographic attributes and investors' risk tolerance in their investing decision-making process. Very few studies have been conducted in Saudi Arabia about the demographic features of investors and their perception of risk about investing choices. Thus, this research aims to examine the primary determinants that impact different classifications of investors. This research has gathered data from 936 participants and empirically measured the various aspects of financial risk using the financial risk-tolerance scale (FRT). The properly crafted online surveys were disseminated among inhabitants using Google Forms. This work used a quantitative methodology to analyze a multinomial logistic regression model. The empirical results of the research revealed a strong favourable impact of certain demographics on financial risk tolerance. More precisely, the findings indicated that moderate risk scores substantially influenced marital status, monthly income, and place of residence. Above-average risk scores highly influence marital status, monthly income, and employment status. Furthermore, high-risk scores have a statistically significant effect on marital status and employment experience. However, the FRT score is highly associated with gender, age, academic degree, employment experience, and place of residence. Moreover, the parametric analysis revealed variations in financial risk-tolerance attitudes among inhabitants based on their geographical location. The research findings will be crucial and beneficial to policymakers and investors, contributing to the financial market growth process in Saudi Arabia.