Differences in Financial Risk Tolerance Across Income Groups: A Kruskal–Wallis Test Approach

Abstract

A major factor that determines how individuals invest, how they distribute their portfolios, their savings and the general financial performance of individuals is the
financial risk tolerance. Even though the above studies have done a comprehensive research on demographic and psychological variables that determine risk
tolerance, income differences have not been well studied particularly by the non-parametric methods of analysis. The current paper will address the question of
whether there are any significant differences in the financial risk-taking between income groups by applying the Kruskal-Wallis test. The research design adopted
was quantitative, cross-sectional research design where primary data were collected using a structured questionnaire where 245 respondents participated. The
financial risk tolerance was established based on a standardised scale that evaluates the attitude towards uncertainty, the preferences towards investment and the
ability to bear losses. The respondents were classified into three groups of income: low, middle and high income. The deviation of non-normal distribution of the
data was first observed, and thus, the implementation of a non-parametric statistical approach was reasonable. The results show that there were statistically
significant differences in income groups in terms of financial risk tolerance (p < 0.05). The higher-income respondents are more willing to take financial risks than
the lower-income respondents, with the most notable differences being between the low- and high-income categories. The post hoc comparisons also confirm that
the income level is a key distinguishing factor in the formation of risk attitudes. The study contributes to the literature to discuss financial behaviour by providing
an empirical study with a solid non-parametric model. It provides practical implications to financial advisors, policymakers, and investment professionals to design
income-sensitive financial strategies and to improve inclusive financial decision-making.