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Cognitive Aging and the Capacity to Manage Money

Anek Belbase and Geoffrey Sanzenbacher

Issues in Brief from Center for Retirement Research

Abstract: While Americans often worry about not having enough money in retirement, they seldom worry about their capacity to manage that money.1 At first glance, this lack of concern appears justified because many financial activities are so routine – like paying the monthly bills on time. Such activities draw on “crystallized” intelligence, which is accumulated knowledge that increases with age. But normal cognitive aging can lead to financial mistakes because people lose much of their “fluid” intelligence – the capacity to process new information – by the time they reach their 70s or 80s. And a minority develop a cognitive impairment that severely erodes financial capacity. This brief, the third in a series of three, reviews the literature to assess how cognitive aging affects the capacity to manage money during ages 70-90. The first brief provided a primer on cognitive aging, and the second brief assessed its effects on the ability to work during ages 50-70. The discussion proceeds as follows. The first section explains how cognitive aging could potentially affect the ability to manage personal finances. The second section examines the impact of normal cognitive aging on financial capacity. The third section explores the effects of cognitive impairment on financial capacity. The final section concludes that: 1) most people who experience normal cognitive aging can continue managing their money in their 70s and 80s, but some, especially financial novices who take over money management after the death of a spouse, will need help; 2) most people with a cognitive impairment will need help managing their money to prevent fraud or abuse; and 3) providing this assistance effectively will require overcoming several obstacles.

Pages: 7 pages
Date: 2017-01
New Economics Papers: this item is included in nep-age and nep-neu
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