A comparative analysis of the financial risk preference between generation X and generation Y investors

Abstract

The purpose of this study is to compare and evaluate the differences in financial risk preference between Generation X and Generation Y investors. The study identifies how Generation X and Generation Y investors react to different financial products and financial situations. In the literature review, the author discusses various topics. This includes, the financial risk preference, financial decision making such as, the financial literacy and the risk-return trade-off. It also includes a discussion of the two types of financial investments i.e., traditional and alternative investments. These were further split into more types of financial products. Additionally, the author presents a discussion about Generation X and Generation Y individuals and includes studies relating to their financial risk preference. To obtain such information and to carry out this study, a questionnaire was distributed to investors between the ages of 24 and 39 years, representing Generation Y and investors between the ages of 40 and 55 years old, representing Generation X. The questionnaire was distributed on an online platform to these individuals. The main findings of this study include that, investors in Malta have a basic understanding of investment principles and of the financial markets. Another finding was that the most common investment product is equity amongst both generations. Generation X investors were also very likely to invest in bonds and mutual funds and Generation Y investors were very likely to invest in Digital assets. Furthermore, in relation to risk and return, Generation X investors were much more likely to invest in an investment grade bond rather than a high yield bond unlike Generation Y investors. Thus, this concludes that when comparing the financial risk preference of Generation X and Generation Y investors, it resulted that the majority were average risk takers. However, Generation X investors shifted more towards a risk averse preference and Generation Y investors shifted more towards a risk seeking preference.