Household Size and Risk Aversion of Households in European Union
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Keywords:
Household Size, Risk Aversion, Household Finance, Household Financial Decision Making, HFCS DataAbstract
The paper examines the effect of household size on risk aversion using data from the
Household Finance and Consumption Survey (HFCS) conducted in European Union (EU) countries in
2010, 2014, 2017, and 2021. We assume that larger households are more risk averse meaning that
households with more members are less likely to invest in shares, which are among the riskiest
instruments. We test our assumption using the percentage of households owning shares as an inverse
proxy for risk aversion in each household size group. We use regression analysis, the results of which
show that from 2010 to 2017 there was a downward trend in the percentage of households owning shares,
which can be explained by the accession of new EU members, whose households tend to be less inclined
to invest. In terms of household size, the groups with one and five or more members had the lowest
proportions of households owning shares throughout the investigated period. In addition to risk aversion,
it can be assumed that one-member households have less reason to invest as they have no dependents,
while households with five or more members do not have sufficient resources to invest due to high
expenses.
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