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  • ferkel_arschloch ferkel_arschloch Mar 12, 2013 11:52 AM Flag

    Old Age and the Decline in Financial Literacy

     

    Old Age and the Decline in Financial Literacy

    Michael S. Finke

    Texas Tech University; University of Missouri at Columbia - Department of Finance

    John S. Howe

    University of Missouri at Columbia - Department of Finance

    Sandra J. Huston

    Texas Tech University

    August 24, 2011

    Abstract:
    Households over age 60 own half of the discretionary investment assets in the United States and are increasingly responsible for generating income from these investments to fund retirement. Studies in cognitive aging show that older respondents experience a decline in cognitive processes closely related to financial decision making. We investigate whether knowledge of basic concepts essential to effective financial choice declines after age 60. Financial literacy scores decline by about 2% each year after age 60, and the rate of decline does not increase with advanced age. Results from regressions censored by respondent groups and financial literacy topic areas suggest that the decline is not related to cohort effects or differences in gender or educational attainment. Confidence in financial decision making abilities does not decline with age. Increasing confidence and reduced abilities can explain poor credit and investment choices by older respondents.

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