The cognitive declines that sometimes come with aging can lead to costly decisions when older adults are overly confident about their financial know-how, research shows.
“Mixing a decline of financial literacy with an increase in self-confidence is a toxic combination,” says John Howe, professor and chair of the finance department at the Trulaske College of Business at the University of Missouri. “This opens the door for more honest mistakes as well as fraud.
“It’s widely known that older adults are very common victims of financial fraud. It’s important that as we age, we find someone who has our best interests in mind when managing our finances.”
Howe and colleagues Michael Finke and Sandra Huston from Texas Tech University surveyed more than 3,850 individuals 60 and older and found that they experienced increasing declines in financial literacy, which is the ability to understand and make good decisions about personal finances.
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The researchers also found that the participants’ self-confidence increased slightly. This meant that even though they didn’t understand financial terms or policies well, they still believed they could make good decisions about their personal finances.
Howe offers a tip to seniors: find a financial adviser who has a good reputation and who is willing to take the time to answer questions.
“It is important to find an adviser who has your best interests at heart,” Howe says. “Be sure to understand how your adviser is paid—fees, commissions, and so forth—as that can affect their perspective. Investors should expect to pay for good financial advice; it will save them thousands of dollars in the long run.”
Read the team’s paper published in the journal Management Science.
Source: University of Missouri