Old Age and the Decline in Financial Literacy

Michael S. Finke (), John S. Howe () and Sandra J. Huston ()
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Michael S. Finke: Department of Personal Financial Planning, Texas Tech University, Lubbock, Texas 79409
John S. Howe: Department of Finance, University of Missouri, Columbia, Missouri 65211
Sandra J. Huston: Department of Personal Financial Planning, Texas Tech University, Lubbock, Texas 79409

Management Science, 2017, vol. 63, issue 1, 213-230

Abstract: Households age 60 and older bear increasing responsibility for managing retirement portfolios, and they hold the majority of financial assets in the United States. Cognitive aging studies find evidence of a decline in fluid and crystallized intelligence in old age that may impact the ability to manage money effectively. Using a large sample of older respondents, we test whether knowledge of basic concepts essential to effective financial choice declines after age 60. We find a consistent linear decline in financial literacy score after age 60. A nearly identical rate of decline among men, stockowners, older, and college-educated respondents indicates that cohort effects are not driving the results. Confidence in financial decision-making abilities does not decline with age. A separate analysis using data that include measures of cognitive ability suggests that a natural decline in both fluid and crystallized intelligence in old age contributes to falling financial literacy scores.

Keywords: financial literacy; cognitive ability; household finance; aging; retirement (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (46)

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