A very interesting study out of Texas Tech University asks the question: How is Financial Literacy Affected By Age? The results are very interesting. Even though the paper reports that households with ages over 60 years possess more than half of the wealth in the United States, a decidedly younger crowd, the 45-49 year olds, possess the most financial knowledge. The implication: while we know that there is a decline in physical and cognitive capabilities which comes with aging, we should also note that with those cognitive changes may come with curious financial decisions as well. That said, with this study in hand we can estimate your peak financial years.
Respect Your Elders, But Assist Them In Financial Matters in Your Peak Financial Years...
Many Americans find themselves in a situation where they are taking care of aging parents and grandparents. At the same time, it seems that more financial predators target their schemes towards the older crowd. The idea of scam artists finding their marks usually ends with a description of a "little old lady" who was taken for a ride by a dubious character. This stereotype comes with a hefty serving of truth: while financial prowess declines with aging, financial skills among the females in this study were worse than those of the males. To pick one statistic: while males scored 50.64% on the investment section of the quiz, females clocked in with only 36.59%. Some of this may be traditional gender roles current members of the Silent and Greatest Generation were raised with, but take note. Granny may be sharp as a tack, but her confidence may be covering up a lack of sophistication in financial matters.
All in, financial literacy in the study declined at a whopping 2% every year after age 60. While a 70-74 year old can generally match financial wits with the 25-29 year old crowd, skills erode quickly from that point.
What To Watch For, and How to Know Your Loved Ones Need Help
Luckily, the study was pretty extensive (even though there were only 16 questions). There are a few topics which the most respondents had trouble with, and if you are charged with the care of elders it would be good to watch their knowledge of these difficult topics. The ones which had the lowest numbers of correct responses are where you can most readily assess the financial skills of your loved ones:
- The benefits of diversification (25.4% correct)
- The relationship of deductibles and premiums (32.6% correct)
- Tax benefits of retirement accounts (34.0% correct)
- The relationship of mortgages and borrower qualifications (36.9% correct)
So there you have it, cognitive decline is a slow process, but 45-49 are probably (or going to be? were?) your peak financial years.