Abstract:
This paper is aimed at examining the relationship between risk tolerance behaviour and the
education investment of families in different social sectors, i.e. urban, rural, and estate, in Sri Lanka. At
the initial step, the study used Binary Logistic Regression for identifying the significant variables for
financial risk tolerance and for household investment on education. Having identified the two sets of
variables for each domain, the second step was to apply the Canonical Analysis in order to examine the
association between risk tolerance behaviour and education investment. The data for the study was
obtained from a sample survey conducted in six Divisional Secretariat Divisions (DSDs) of three districts
in Sri Lanka. The sample was selected considering the social sectors as strata, using multi-stage
sampling technique joined with cluster sampling. The study found that „social sector‟ and „education of
household head‟ were the main contributors to „household investment on education‟. It revealed that
when the „social sector‟ changes from urban to rural and rural to estate there is a tendency of
households to decrease the share of expenditure on education. However, the „education level of the
household head‟ had s significant positive impact for the investment in education. It also found that
„income quartile, decision maker‟, „income diversification‟, and „financial literacy‟ positively contributed to
„risk tolerance behaviour‟. However, the findings show that financial risk tolerance decreases with the
distance of households to a financial institute. The canonical relationship shows a negative association
between „income quartile‟ and the „social sector‟ and the „income quartile‟ improves with the change of
the „social sector‟ from estate to rural and rural to urban. It also revealed that „income quartile‟ was
positively associated with the „education of the household head‟. A primary conclusion can be arrived at
that income and spatial related attributes are crucial in determining the impact of risk tolerance in
household education investment. In addition, the study revealed that risk tolerance and, in turn, the
tendency to invest in education increases with the change of gender from female to male. Therefore, it
suggests that gender related attributes are also important in the financial risk tolerance and education
investment.
