Financial literacy may decline with age
MoneySense.ca, Bryan Borzykowski
It takes years of hard work and dedication to build up a retirement nest egg, so it stands to reason that by the time someone retires they’d have some confidence in their ability to handle their own financial affairs. Unfortunately, a recent study suggests that seniors’ capacity to make smart financial choices declines with age.
Last August, University of Texas’ Michael Finke and Sandra Huston and the University of Missouri’s John Howe, published a study that found financial literacy significantly declines after age 60. According to their research investment literacy falls by 3.4% per year, insurance literacy slips by about 2% a year while basic financial literacy declines annually by 2.4%.
Interestingly, while the researchers recorded a drop in financial literacy amongst seniors, they found seniors’ investing confidence either remained constant or increased. “Increasing confidence and reduced abilities can explain poor credit and investment choices by older respondents,” note the study’s authors. It’s a bad combination. But the study’s authors say seniors have nothing to worry about if they prepare for a drop in their financial know-how.
Cynthia Kett, a principal with Toronto-based Stewart & Kett Financial Advisors, says she’s seen evidence of this in her own practice. In her experience, though, the drop in knowledge happens well after people turn 60 and it’s not just related to cognitive changes as the study suggests.