Do you know what your money risk tolerance level is? Find out in the first post. This second part looks into hereditary factors and other factors that may affect our money risk tolerance levels. Read on.

Can an individual’s risk tolerance be hereditary?

Yes, there’s evidence to suggest that an individual’s risk tolerance can be influenced by genetic factors. However, those evidences are insignificant, are about general risk tolerance levels, and not specific to money risk tolerances.

Studies have shown that genetic predispositions can play a role in shaping personality traits related to risk-taking behavior, such as sensation-seeking and impulsivity, which in turn can influence financial risk tolerance. (Nicolau, N. & S. Shane)

However, it’s essential to note that risk tolerance is also influenced by environmental factors, upbringing, personal experiences, and cultural influences. While genetics may contribute to a predisposition toward certain behaviors, including risk-taking, these factors interact in complex ways to shape an individual’s overall risk tolerance. (

Can hereditary risk tolerance change?

While genetic predispositions may influence an individual’s baseline risk tolerance, it’s important to recognize that risk tolerance is not fixed and can evolve over time due to various factors. Those factors include:

1. Life Experiences:

Significant life events, such as personal financial successes or failures, career changes, or market fluctuations, can shape one’s perception of risk and alter their risk tolerance.

2. Education and Knowledge:

Increasing financial literacy and understanding of investment principles can empower individuals to make more informed decisions, potentially affecting their risk tolerance.

3. Age and Life Stage:

Risk tolerance often changes with age and life stage. Younger individuals may have a higher risk tolerance as they have more time to recover from potential losses, while older individuals nearing retirement may become more risk-averse to protect their accumulated wealth.

4. Market Conditions:

Economic conditions and market fluctuations can influence perceptions of risk and may prompt individuals to reassess their risk tolerance.

5. Health and Well-Being:

Physical and mental health can also impact risk tolerance. Stress, anxiety, and health concerns may lead to a more conservative approach to finances, whereas a sense of security and well-being may increase risk tolerance.

6. Social Influences:

Peer pressure, societal norms, and cultural attitudes toward risk can influence an individual’s perception of risk and willingness to take on financial risks.

7. Financial Goals:

Specific financial goals, such as saving for retirement, purchasing a home, or funding education, can influence risk tolerance. The importance of these goals and the time horizon for achieving them can impact one’s willingness to take on risk.

8. Financial Situation:

Changes in income, wealth, or financial obligations can affect risk tolerance. For example, a windfall or increase in income may lead to a higher tolerance for risk, while financial setbacks or increased expenses may decrease it.

9. Psychological Factors:

Emotions such as fear, greed, overconfidence, or loss aversion can influence risk tolerance. These psychological biases can lead individuals to make irrational decisions or deviate from their typical risk tolerance.

10. Market Conditions:

External factors such as economic conditions, interest rates, inflation, and market volatility can impact risk perception and influence risk tolerance. During periods of economic uncertainty or market downturns, individuals may become more risk-averse.

11. Changes in Personal Circumstances:

Life events such as marriage, divorce, birth of children, or career changes can impact risk tolerance. Responsibilities and priorities may shift, leading individuals to reassess their risk tolerance in light of new circumstances.

Overall, while hereditary factors may contribute to an individual’s baseline risk tolerance, it’s subject to change based on a more comprehensive understanding of factors throughout life.