I have had to deal with this issue frequently over the last few years. I thought that individual investors would be interested in the resource that has made me more aware of the effects of aging and making financial decisions.
I found a recent health and retirement study by the TIAA Institute titled, “Cognitive Ability, Financial Literacy, and the Demand for Financial Advice at Older Ages.”
The Institute’s report highlights exactly what I have seen with my best clients as they have aged over the last few years. Their ability to manage finances and cognitive ability declines as they get older.
My clients realize that a source of independent, third-party, financial advice helps them improve the investment management decisions. Sadly, the study found that most individual investors mistakenly believe that their acumen remains intact as they age. They don’t seek third-party financial help in managing their assets.
The study found that individual investors with a higher level of financial literacy are less susceptible to making poor financial choices. Individuals with more financially savvy are also more likely to seek help related to money matters and less likely to be overconfident.
Focusing on adults ages 50 and over, TIAA examined data from the nationally representative Health and Retirement Study to draw its conclusions. Other key findings published in the Institute’s “Cognitive Ability and the Demand for Financial Advice at Older Ages” report include:
• People scoring higher on cognitive questions by one standard deviation are 52 percent more likely to avoid advice due to self-confidence. Interestingly, they are also 50 percent less likely to know whom to ask for help.
• People scoring higher on financial literacy questions by one standard deviation are 13 percent more likely to spend time managing finances; 10 percent more likely to get help with money management; 29 percent less likely to avoid asking for help due to self-confidence; and 21 percent less likely to not know whom to ask for help.
• Among all adults 50 and up, half admit to devoting time to managing their finances within the last year. Two in five completed tasks more challenging than simply managing a checking account. A little over one-third sought help with financial tasks, with over half seeking investment advice.
• Of respondents who did get advice, 71 percent consulted a professional advisor and 76 percent received advice from either an advisor or nonfamily member. Regrettably, 14 percent of respondents admit to receiving advice from a free source with potential conflicts of interest.
Ric Lager
Lager & Company, Inc.
