The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation is the title of a research study that reports we hit our peak financial decision making ability in middle age. According to the four economists/authors: "We conclude that financial mistakes follow a U-shaped pattern, with the cost-minimizing performance occurring around age 53."
Further info: "Many consumers make poor financial choices and older adults are particularly vulnerable to such errors. About half of the population between ages 80 and 89 either has dementia or a medical diagnosis of 'cognitive impairment without dementia.' We study lifecycle patterns in financial mistakes using a proprietary database that measures ten different types of credit behavior. Financial mistakes include suboptimal use of credit card balance transfer offers, misestimation of the value of one's house, and excess interest rate and fee payments."
Further info: "Many consumers make poor financial choices and older adults are particularly vulnerable to such errors. About half of the population between ages 80 and 89 either has dementia or a medical diagnosis of 'cognitive impairment without dementia.' We study lifecycle patterns in financial mistakes using a proprietary database that measures ten different types of credit behavior. Financial mistakes include suboptimal use of credit card balance transfer offers, misestimation of the value of one's house, and excess interest rate and fee payments."
Implications?
Young adults: listen to your parents' advice.
Oldsters: get help with your finances from your kids or a trusted advisor.
Middle agers: enjoy your wisdom but watch out for your parents (and keep learning as the financial world evolves and becomes more complex).
If you haven't already initiated the conversation with your parents about financial management in old age, maybe this info can help. (Although the focus of the study is on needed public policy changes to help consumers avoid poor decisions, it has application in the realm of family finance.)
Young adults: listen to your parents' advice.
Oldsters: get help with your finances from your kids or a trusted advisor.
Middle agers: enjoy your wisdom but watch out for your parents (and keep learning as the financial world evolves and becomes more complex).
If you haven't already initiated the conversation with your parents about financial management in old age, maybe this info can help. (Although the focus of the study is on needed public policy changes to help consumers avoid poor decisions, it has application in the realm of family finance.)
Citation: Agarwal, Sumit, Driscoll, John C., Gabaix, Xavier and Laibson, David I., The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation (October 19, 2009). Available at SSRN: http://ssrn.com/abstract=973790
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