buy Ivermectin pills As individuals age, their financial literacy declines but their confidence in financial decision-making holds firm, a recent report shows. That is a worrisome combination. Half of all personal financial wealth in the U.S. is in the hands of older Americans, and the decline in money know-how generally starts between ages 50 and 60.
The typical 60-year-old has a financial literacy score of 61%—not great but also not too far from peak ability, according to researchers Michael S. Finke and Sandra J. Huston of Texas Tech University and John S. Howe of the University of Missouri. After age 60, scores start to decline by an average of 1.36 percentage points per year.
That is a significant pace of decline in decisionmaking ability in the face of confidence levels that remain high for many more years. Together, the trend lines underscore the need for broader access to third-party advice and continuing financial education programs until late in life. The findings echo earlier research out of the Center for Retirement Research at Boston College.
To test for financial literacy, the authors posed 16 questions about basic financial concepts like insurance, investments, and credit. To test for confidence they asked about personal money management, credit card debt, investment products, and insurance. Because financial literacy declined and confidence did not, every year after age 60 increased the likelihood of being overconfident–and making mistakes–by an additional 7%. The full study results appeared in the September issue of Management Science.
What should practitioners and policymakers take away from these findings? The researchers offer two main ideas.
First, declines in financial literacy don’t necessarily need to translate into worse financial outcomes if people anticipate losing some of their know-how. Older individuals remain confident in their driving skills too. But they are easily prompted to think otherwise–and modify behavior–after a driving test. Financial wake-up programs geared at older people at community centers could make a difference.
The authors also suggest that older people be encouraged to rely more heavily on turnkey financial products like annuities and life-cycle mutual funds, and that they set these plans in motion before age 60. These are simple concepts that could be reinforced in many community settings. The fewer money decisions folks make past age 60 the more secure their retirement years.