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Understanding Cognitive Aging and Financial Literacy: A Study Review

This document explores the relationship between cognitive decline and financial decision-making abilities in older adults, referencing findings from the Health & Retirement Study (2010). It highlights how age-related cognitive impairment affects financial literacy, emphasizing the importance of planning for such changes. Key topics include the impact of cognitive decline on investments, insurance choices, and retirement planning. The document also provides examples of financial literacy assessment questions, underscoring the need for improved financial education among aging populations.

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Understanding Cognitive Aging and Financial Literacy: A Study Review

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  1. Fluid Intelligence

  2. Cognitive Theory

  3. Word Recall Test (immediate and delayed average, 2010 Health & Retirement Study) (Source:)

  4. Rates of cognitive impairment by Age(Source Agarwal, Driscoll, Gabaix and Laibson, 2010)

  5. Interest Rates on Loans

  6. Financial Literacy (TTU Financial Literacy Assessment Project) • Examples of questions: • 8. Savings accounts and money market accounts are most appropriate for • 1 Long-term investments like retirement • 2 Emergency funds and short-term goals • 3 Earning a high rate of return • 17. If you have an insurance policy with a higher deductible, the premiums will be • 1 Higher • 2 Lower • 3 The same

  7. Investments • 13. The benefit of owning investments that are diversified is that it • 1 Reduces risk • 2 Increases return • 3 Reduces tax liability • 15. The main advantage of a 401(k) plan is that it: • 1 Provides a high rate of return with little risk • 2 Allows you to shelter retirement savings from taxation • 3 Provides a well diversified mix of investment assets

  8. Age and Literacy

  9. Literacy and Confidence

  10. By Topic Area

  11. Equity allocation and cognitive decline

  12. Who Pays for Financial Advice?(By Age & Type of Advice) (Source: Finke, Huston, and Winchester, 2011)

  13. Accepting Cognitive Aging • Decline in financial decision making ability mirrors decline in cognitive ability in advanced age • Importance of planning for cognitive decline • Similar to decline in driving • But, when drivers given objective evidence of declining skills, they change behavior (Holland & Rabbitt, 1992)

  14. Thank You! Michael Finke Michael.Finke@ttu.edu www.pfp.ttu.edu

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