1. Introduction
Achieving sustainable economic growth has been actively discussed since the 2007 global financial crisis. International organizations, such as the Organization for Economic Co-operation and Development (OECD) and International Monetary Fund (IMF), are interested in this subject and have reported that a decrease in income inequality may be a key factor for sustainable economic growth [
1,
2]. The study theoretically summarizes the adverse effects of inequality on the sustainability of economic growth in several aspects [
1]. Inequality may decrease economic growth because it can cause political and social instability, and it may obstruct human capital accumulation within low-income populations. In addition, if inequality restricts domestic demand expansion, it may restrain technological innovation. Thus, finding effective ways to decrease income inequality is a crucial task for sustainable economic growth. The provision of sufficient financial accessibility to low-income individuals has been recently considered as one of the ways to achieve this goal. However, to prepare a more effective financial accessibility policy for low-income individuals, an analysis of the differences in individuals’ understanding about financial risk within low-income groups needs to be preceded. If financial risk is less recognized in individuals with certain characteristics, a financial accessibility policy may have heterogeneous effects within the low-income group, weakening its effectiveness. Thus, in this paper, we aim to investigate individuals’ attitudes to financial risk within a low-income group using survey data collected in South Korea. Furthermore, we aim to seek more effective and efficient sustainable strategies for practitioners and related policy makers.
Financial access is defined as the “access by individuals and businesses to different forms of capital and financial services” [
3]. In other words, it refers to the degree to which individuals can access financial services, such as savings, loans and insurance. Previous study has shown that high financial accessibility helps individuals to accumulate assets and eventually, assists in preparation of their retirement plan [
4]. In addition, researchers have shown that high financial accessibility also mitigates the adverse impacts of economic recession on personal welfare by helping individuals access financial services [
4]. Another study investigated the effect of financial service provision to low income-individuals and found that financial service provision increased their income level [
5]. International organizations also tend to regard the improvement of financial accessibility as a useful tool for achieving sustainable development. The United Nations emphasize the importance of financial accessibility for the achievement of sustainable development goals by 2030 [
6]. The World Bank Group has stated that universal financial access may contribute to poverty reduction [
7]. The Korean government has also tried to improve the financial accessibility of low-income groups by providing emergency funds, start-up funds, interest discounts, and mortgage loans, etc.
To make these financial accessibility policies more effective, individuals’ understanding of financial risk within low-income group needs to be analyzed. When individuals in low-income groups have a poor understanding of financial risk, they tend to easily accept higher financial costs when making important financial services decisions. Unfortunately, if a subgroup with certain characteristics is less informed of financial risk compared to others, the financial burden of this subgroup may become higher. Thus, escaping from a low-income status may be more difficult in this subgroup compared to others. This phenomenon creates a public policy issue in that it implies a financial accessibility policy may have a heterogeneous effect among low-income groups depending on their understanding of financial risk. Following this rationale, we argue that a financial accessibility policy for low-income groups needs to be accompanied with a microlevel analysis regarding the understanding of financial risk within each group.
Among the variety of factors that may influence the understanding of financial risk in low-income individuals, our study focuses on gender difference for the following reasons: First, previous studies have investigated the difference in financial risk perception between genders [
8,
9,
10,
11], but investigating whether the results are also applicable to low-income individuals may be meaningful because the economic environment that low-income people confront may dilute the difference. Second, the main interests of numerous prior studies documenting gender differences in financial risk perception have tended to be limited to financial risk-taking behaviors during financial investment [
8,
9,
10,
11]. Our knowledge about gender difference in borrowing remains rudimentary. Thus, this study presents a novel perspective for the gender difference in risk perception, in that it focuses on the financial costs associated with loans. Third, the financial accessibility policies for low-income groups tend to focus on economic conditions, such as income level and housing status. In fact, policy design does not fully reflect the potential differences in financial risk attitudes between genders. For example, while individuals’ credit ratings and income levels are considered in the application for a “Sunshine Loan” in Korea, there is no consideration of gender. Therefore, we expect the analysis of gender difference in low-income groups may contribute to an improvement in the design of relevant public policies.
In this study, we used data from Korean low-income individuals to investigate gender differences in financial risk attitudes. The empirical results showed that within low-income groups, males are more willing to pay higher financial costs than females. This result implies that males in low-income groups tend to underestimate loan financial risks relative to females in the same group. This is consistent with previous studies in which females have been shown to be more careful regarding risk [
8,
9,
10,
11]. More importantly, we found that males in low-income groups are more willing to pay higher interest when their current financial costs are high. This result implies that males in low-income groups may have more difficulty escaping from their low-income status due to consistently bearing a high financial burden.
The contributions of this study are as follows: First, from a practical point of view, this study implies that special care to males in the low-income group, such as more substantial financial education, needs to occur to make the financial accessibility policy more effective. Second, this study contributes to prior literature that documents the difference in recognition of financial risk between genders [
8,
9,
10,
11]. As attitude towards financial risk within low-income groups has not been a major focus in the literature so far, this paper fills this gap by examining attitudes to financial risk within low-income groups, through Korean survey data, that could be targeted by policies. Third, previous studies have shown that gender effects may vary by country. For instance, the effects of gender diversification in a board on firm performance in Germany and Denmark [
12,
13] is different from the effects in the US [
14]. Thus, this study contributes to international research by reporting Korean evidence.
This paper is organized as follows: we review prior literature and establish hypotheses in
Section 2. In
Section 3, we present our research methodology.
Section 4 shows empirical results. Finally,
Section 5 summarizes and concludes the paper.
2. Literature Review and Hypotheses
Gender difference has been widely documented in prior literature from a variety of angles. One line of literature has investigated gender differences in decision-making. Using data from 1334 responses to a survey by the Canadian Tourism Commission, a prior study found that male and female customers have different preferences for online information usage and thus, travel website structure may affect the decisions of male and female customers differently [
15]. Another study found that boys are more likely to select more a competitive curriculum program that incorporates higher level math and science than girls [
16]. The study argues that this difference may affect their career choices. Gender difference in decision-making has also been observed in the professional workplace. In China, female auditors are likely to apply more conservative standards during audit tasks than their male counterparts [
17].
Other researchers have examined the gender difference in terms of moral code. A prior study showed that relative to females, males have a higher tendency of deceiving other people for their own benefit [
18]. Another study showed that female and older students behave more ethically in various situations [
19]. Similar to these studies, another study showed that females tend to apply stricter moral standards when evaluating business practices [
20]. Also, if a group is mainly composed of females, individuals in the group tend not to delay their loan payments [
21]. Another line of studies has reported that the presence of females on the board positively affects a firm’s corporate social responsibility (CSR) rating and performance [
22,
23].
Males and females may respond differently to certain behaviors or information. Males and females tend to determine the continuous usage of social network services (SNS) based on different factors [
24]. Time consumption in commuting may be more harmful to the mental health of females than males because females spend more time on household tasks [
25]. The effect of stress on decision-making, such as tournament entry, varies depending on gender [
26]. Gender difference is also observed in the persistence of feelings of satisfaction. While satisfying emotions have more permanent effects on boys, dissatisfaction tend to persist among girls [
27].
A gender difference that is frequently cited in economics is the gender difference in risk-taking. From a theoretical perspective, the gender difference in risk-taking may occur because males are more likely to follow sensational events and be more overconfident than females [
28,
29]. A previous study showed that female financial advisors pay more attention to possible gains or losses than their male counterparts in the financial investment industry [
30]. In addition, the authors of that study also indicated that female advisors are more careful in interpreting financial information. Other studies have documented the gender difference in risk preference [
31,
32,
33]. They found that females are more risk averse than males and take different strategies in financial decisions [
32]. Similarly, a study found that single females are more risk averse than single males. In this study, the authors linked the lower wealth of women compared to men with their difference in risk preference [
34]. Another study showed that public financing policies entailing a high guarantee ratio may increase males’ credit risk [
35].
Although these studies provide some evidence of how females’ financial decisions are different from the decisions of their male counterparts, our knowledge regarding the gender difference in risk attitude within low-income people remains rudimentary. Focusing on low-income individuals is important because the effect of a financial accessibility policy on low-income individuals may be influenced by their financial risk attitude. In addition, the gender difference regarding risk attitudes towards loans has not been sufficiently reviewed yet. Our study fills this void. If males tend to follow sensational events and be more overconfident than females, we expect that meager economic conditions may not change these innate characteristics. Thus, we firstly hypothesize that males in low-income groups take more financial risks than their female counterparts. Then, based on the anticipation that higher financial stress may simulate males’ tendency to seek sensational events, we secondly hypothesize that males are more likely to take risk when under higher financial pressure. By examining these hypotheses, this study is expected to supplement prior studies regarding gender differences in financial risk-taking that have tended to be limited to financial investment. Also, our study may provide useful implications regarding whether males may find it hard to escape from poverty due to their improper risk attitudes.
5. Discussion and Conclusions
A decrease in income inequality is crucial factor for society to allow sustainable economic growth. Providing sufficient financial accessibility to low-income individuals is considered an effective way to decrease income inequality. However, attitudes towards financial risk within low-income groups have not been investigated. This study addresses this issue. We employed gender as our main interest variable because even though previous studies have investigated gender differences in risk-taking behavior, current public policy on financial accessibility tends not to reflect the gender difference factor.
Despite its contributions, this study has the following limitations. First, our study used an empirical analysis of gender difference in risk attitude within low-income groups. Thus, it does not provide the causes of differences shown. Second, as we have basically used raw data from multiple-choice type questions, we converted most variables into categorical values to reflect the multiple-choice answers of individuals. Thus, this study is not free from the potential information loss due to the nature of the data style. Third, even though we found that males are more likely to accept higher interest rate payments, it is doubtful whether the result really leads to a higher interest burden in males. At this stage, we cannot make definitive conclusions due to data scarcity.
Our findings, however, shed light on how we can reach sustainable financial health in socially and economically under-privileged communities by investigating gender differences in risk-taking behaviors and their motivations. First of all, we found that males are more willing to pay higher interest rates compared to females. In addition, males’ high willingness to pay high interest rates becomes stronger when their current financial costs are high. These results indicate that males are relatively ignorant of, or disregard, the risks that high interest rates can bring. In addition, these results also imply that the intention to pay higher interest rates may hinder males from escaping their low-income status by increasing their financial burden.
The implications of the results of this study are as follows: First, this study shows that there needs to be a focus on low-income males to help them avoid excessive financial burden. Second, this study extends prior literature about gender differences in risk-taking to differences in loan behavior. Third, this result implies that males may accumulate wealth because of their risk attitudes; however, for that very reason, they may have difficulty escaping from their low-income status. In summary, this study provides a useful milestone regarding what to supplement in financial accessibility plans that aim to decrease income inequality and achieve sustainable economic growth.
Our study may introduce research opportunities in related areas. First, our study did not present a concrete improvement direction for current financial accessibility plans. Thus, a promising future research project may be preparing an alternative financial accessibility plan that reflects the gender difference from a public policy perspective. Second, our study examined the gender differences between interest payment intentions in general for low-income people. Extending the results to various types of loans (e.g., consumption vs. mortgages) may present unexplored, meaningful implications.