Many older adults experience declining cognitive ability and make sub-optimal investment decisions, posing a challenge for themselves and their families.
Summary
Cognitive ability and financial literacy can have an indeterminate effect on older persons’ financial behavior. Older investors who recognize that their capacity to manage financial assets is diminished would rationally delegate the task to others. But those who mistakenly believe their acumen remained intact might continue managing their money themselves. This study examines the ambiguous influence of cognitive ability and financial literacy at older ages to gauge their impact on demand for, and use of, financial advice.
Key Insights
- Cognitive ability and financial literacy are often positively correlated with demand for financial advice.
- The more cognitively able are more likely to seek financial advice from professionals, but also are more likely to be overconfident about their investments.
- The more financially literate are more likely to get help with money management, but are less likely to be overconfident.
- Financially savvier and more cognitively able individuals are not more likely to follow financial advice when given.
