Old Age and the Decline in Financial Literacy

Abstract

Households age 60 and older bear increasing responsibility for managing retirement portfolios, and they hold the majority of financial assets in the United States. Cognitive aging studies find evidence of a decline in fluid and crystallized intelligence in old age that may impact the ability to manage money effectively. Using a large sample of older respondents, we test whether knowledge of basic concepts essential to effective financial choice declines after age 60. We find a consistent linear decline in financial literacy score after age 60. A nearly identical rate of decline among men, stockowners, older, and college-educated respondents indicates that cohort effects are not driving the results. Confidence in financial decision-making abilities does not decline with age. A separate analysis using data that include measures of cognitive ability suggests that a natural decline in both fluid and crystallized intelligence in old age contributes to falling financial literacy scores. This paper was accepted by Brad Barber, finance.

Age differences in consumer financial capability

“…As consumers age, their actual financial capability should increase alongside their more complicated financial lives, resulting in an increase in their perceived financial self-efficacy or confidence. Previous research has showed that consumer financial confidence did not decline among consumers aged 60-85 years old (Finke et al, 2011). We then propose the following hypothesis:…”

“…No previous research was found to focus on subjective financial literacy among older consumers. However, a study focusing on older consumers found that, among consumers older than 60 years, objective financial literacy may decline but financial confidence never does (Finke et al, 2011). If confidence increases with age, then we assume that subjective financial literacy should also increase with age.…”

Exploring the Relationship between Financial Education and Financial Knowledge and Efficacy: Evidence from the Canadian Financial Capability Survey

“…The relationship between age and financial self-efficacy is less clear. Some have raised concern about a financial knowledge gap, where older adults overestimate their financial knowledge in greater frequency than younger adults (Finke, Howe, and Huston 2016;Khan et al 2017).…”

Efeito de Crise Econômica sobre Escolhas de Ativos para Investimentos Pessoais

“…A literatura documenta evidências de que os norteamericanos estavam menos convictos de que possuíam fundos suficientes em suas aposentadorias para manter seus respectivos padrões de vida (The Hartford, 2009). (Finke, Howe, & Huston, 2017;Fisher, 2010;O'Neill & Xiao, 2012). A Tabela 1 apresenta as variáveis independentes e dependentes.…”