What makes some people thrifty savers and others shrewd investors?
Experts find it's probably not just personality or intelligence that influences how you handle money and investing. Your age and the economic conditions prevailing during your various life stages shape how you perceive financial matters, and learning about your age bias may help you overcome it.
Hear what experts are finding that may help you make wiser decisions beyond your years. Click the age-group tabs below to see.
Ages 20 to 40
Ages 40 to 60
Ages 60 through retirement
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Peer into the future
If they realized their precious youth was fleeting, more young adults might contribute to a retirement account, researchers have found.
Hal Hershfield, a professor at New York University's Stern Business School, advises 20-somethings to call a grandparent they feel close to or their parents before deciding whether to start contributing to a 401(k).
Thinking about your older relative is a low-tech way of recreating the experiment that Hershfield conducted along with researchers at Stanford University, London Business School and Ohio State University between 2008 and 2011. In the experiment, students were provided a look at their future selves through aging software.
Those who saw their wrinkled, older selves saved about one-third more than those exposed to their current, presumably ever-youthful selves. Calling Gramps or perhaps writing a letter to "your future self" might help a young adult decide to hold out some of his or her paycheck for his retirement account, Hershfield says.
Don't be afraid
What if a 30-year-old did heed advice and enrolled in a 401(k) plan five years ago?
Most financial planners would advise him or her to direct the bulk of the contribution into stocks, since "bonds and cash are not the answer for the long-term growth," says Nicholas Laverghetta, a CFP from Ramsey, N.J.
But it's likely the sinking stock market would convince this younger worker to pull out of stocks and move into less risky investments, and he may even sour on stocks for much of his working life, according to research by Stanford University associate finance professor Stefan Nagel and the economist Ulrike Malmendier of the University of California at Berkeley.
They examined the investing habits of people who witnessed severe bear markets early in adulthood, studying data from 1964 through 2004, and found market downturns left lasting fears.
They also found that subsequent bull markets help to mitigate early aversion to stocks. Still, "extrapolating from our findings, one would expect that today's young adults will be more averse to stock investments than, say, young adults in 1999," Nagel states in an email.
Laverghetta says he often sees clients aged 40 who are afraid of stocks. "This is a complete reversal from what people this age felt five years ago," he says. To help overcome the fear born out of the recent roller-coaster financial years, Laverghetta says he shows his young adult clients long-term charts of stock performance.
Dodge the debt ditch
Like a teenager who loves getting his driver's license, young adults like carrying credit cards.
Ohio State University research polled 3,079 young adult participants several times through the late 1990s to 2004. The young adults -- polled about their credit -- were the children of mothers of the National Longitudinal Survey of Youth of 1979, which was conducted by Ohio State University for the U.S. Bureau of Labor Statistics.
The researchers examined participants' feelings about student loans and credit cards. Rachel Dwyer, lead author of the study and OSU assistant professor of sociology, says the researchers thought education-related debt could be associated with self-esteem, since it represents an investment in the young person's future.
"Surprisingly, though, we found that both kinds of debt had positive effects for young people," Dwyer says in an OSU release of the study in 2011. "It didn't matter the type of debt, it increased their self-esteem and sense of mastery."
However, the OSU research found the stress of paying the bills overtook the pleasures of owning plastic for the older participants -- those ages 28 through 34.
"Our study used data from before the financial crisis," Dwyer says in an email. Given the downbeat economy, young adults may now be less enthusiastic about credit cards, she says.
Indeed, another long-term study examining credit use among 19,000 people born nationwide as they aged from teens through adulthood conducted by NORC at the University of Chicago finds that credit card debt, acquired early, is stubbornly hard to shed.
The NORC followed people born from 1957 to1964 as well as from 1980 to 1984. For both groups, debt -- credit card as well as other personal debt acquired early in life -- was likely to still remain and have grown by 10 percent five and 10 years later, says Rupa Datta, a NORC senior fellow.
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Use your head
When people make financial decisions, they use "crystallized" thinking, which is a combination of reasoning ability and past experience, says Harvard economist David Laibson.
In a 2009 study, Laibson and other researchers showed crystallized thinking peaks at about age 53, making middle-aged people better at problem solving, from what qualities to look for in a financial adviser to comparing credit offers.
Laibson says as people become elderly, it's more difficult for them to make sound financial judgments, and they become more vulnerable to scams.
Use your middle-age mental prowess to prepare for the vulnerable years ahead, Laibson says. While there's no foolproof system for safeguarding against scams, you may want to take steps to eliminate many investing decisions, perhaps by switching to investments such as target-date mutual funds, he says. Target-date funds are geared to investors who will reach retirement by a certain date and adjust investments toward safer vehicles such as bonds as the investors age.
Profit from patience
Would you rather have $5 now or $7.50 in 90 days?
From an investing perspective, the right answer is often to wait for the bigger gain. Younger adults usually opt for the quicker, smaller payoff.
"There is no specific turning point or age at which people become more patient. The process appears to happen gradually over the course of the life span," says Corrina Loeckenhoff, director of the Laboratory for Healthy Aging at Cornell University, who recently examined the effect of age on financial gain and loss.
Of course, an investment can rise in value and then drop precipitously as did some of the dot-coms of the '90s. Still, an urge to quickly take a profit often means you'll miss out on later gains while racking up trading charges, says Andy Tilp, a CFP in Portland, Ore.
Tilp says many financial planners will advise following a systematic plan of rebalancing, meaning selling off a portion of holdings that have risen and making other investments that are out of favor and thus have temporarily depressed values.
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Look at loss logically
Retirees have a much higher degree of loss aversion than the overall population, according to research in 2007 by Eric Johnson, a Columbia University business professor.
Since they're relying on income from a nest egg, it's understandable retirees would seriously lament drops in the market.
But loss aversion also works against what retirees seek to attain -- enough money for a steady income through their lives, Johnson says. Many of today's retirees don't have a defined pension providing steady, lifelong income, he says.
Purchasing an annuity is one answer, since these allow one to pay an upfront amount for a guaranteed income over one's life. But retirees typically don't like handing over a sum of money. "They think of it as a loss," he says.
Perhaps purchasing an annuity or annuities over a space of time, rather than relinquishing a big sum all at once, would help retirees overcome the feeling they're handing away their nest egg, Johnson says.
Recognize risk as risky
Johnson's finding of the increased pain retirees feel at financial loss is also supported by other research, says Greg Samanez-Larkin, a post-doctoral fellow at Vanderbilt University who previously studied older adults and financial decision-making at the Stanford University Center on Longevity.
Studies show that when older people are stung by loss, they will often try to recoup their shortfall by taking risky bets, believing they will get a big return, Samanez-Larkin says.
While riskier investments offer the promise of bigger rewards than safer investments that pay a minimal yield, the probability the risky bet will also be a loser is great, Samanez-Larkin says.
He says simply being aware of this loss-aversion/risk-taking combination may help retirees avoid staking too much in a gamble.
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