Old Age and the Decline in Financial Literacy
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. This paper was accepted by Brad Barber, finance.
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Financial literacy scores decline by about 1% a year for people older than 60.
“Finke et al. (2016) find that financial literacy scores decline by about 1% a year for people older than 60.”
From Financial literacy, financial advice, and financial behavior (2017) · cites this paper as Finke et al. 2016
Confidence in financial abilities does not decline with age, making the elderly particularly vulnerable to financial scams and fraud.
“Gamble et al. (2015) and Finke et al. (2016) show that confidence in financial abilities does not decline with age, making the elderly particularly vulnerable to financial scams and fraud (Deevy et al. 2012).”
From Financial literacy, financial advice, and financial behavior (2017) · cites this paper as Finke et al. (2016)
Individuals aged 60 and older hold about 50% of the wealth in the U.S.
“individuals aged 60 and older hold about 50% of the wealth in the U.S. (Finke et al. 2016).”
From Financial literacy, financial advice, and financial behavior (2017) · cites this paper as Finke et al. 2016
Cites
The Economic Importance of Financial Literacy: Theory and Evidence
Lusardi, A., & Mitchell, O. S. (2014) · Journal of Economic Literature · doi:10.1257/jel.52.1.5 · Cited by 4,698 · see citing works
Financial literacy and stock market participation
van Rooij, M., Lusardi, A., & Alessie, R. (2011) · Journal of Financial Economics · doi:10.1016/j.jfineco.2011.03.006 · Cited by 3,554 · cited 3× · see citing works
“Descriptive results from van Rooij et al. (2011) show that the proportion of respondents in the highest basic financial literacy quartile peaks in the 41–50 age category and is lowest among those ages 71 and older.”
InfluentialChoi, S., Kariv, S., Müller, W., & Silverman, D. (2014) · American Economic Review · doi:10.1257/aer.104.6.1518 · Cited by 277 · see citing works
Age differences in fluid intelligence: contributions of general slowing and frontal decline
Bugg, J. M., Zook, N. A., DeLosh, E. L., Davalos, D. B., & Davis, H. P. (2006) · Brain and Cognition · doi:10.1016/j.bandc.2006.02.006 · Cited by 209 · see citing works
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Netemeyer, R. G., Warmath, D., Fernandes, D., & Lynch, J. G. (2018) · Journal of Consumer Research · doi:10.1093/jcr/ucx109 · Cited by 842 · see citing works
Financial literacy, financial advice, and financial behavior
Stolper, O. A., & Walter, A. (2017) · Journal of Business Economics · doi:10.1007/s11573-017-0853-9 · Cited by 471 · see citing works
Shao, J., Zhang, Q., Ren, Y., Li, X., & Lin, T. (2019) · Journal of Elder Abuse & Neglect · doi:10.1080/08946566.2019.1625842 · Cited by 151 · see citing works
The forms of financial literacy overconfidence and their role in financial well‐being
Vörös, Z., Szabó, Z., Kehl, D., Kovács, O. B., Papp, T., & Schepp, Z. (2021) · International Journal of Consumer Studies · doi:10.1111/ijcs.12734 · Cited by 44 · see citing works
- Authors
- Finke, M. S., Howe, J. S., & Huston, S. J.
- Affiliations
- Texas Tech University (US)
- University of Missouri (US)
- Corresponding author
- Finke, Michael S.
- Venue
- Management Science
- Published
- 2017-01
- Volume
- 63
- Issue
- 1
- Pages
- 213-230
- ISSN
- 0025-1909 (ISSN-L)
- 1526-5501
- OpenAlex
- W3125959528
- Cited by
- 347
- References
- 4
- Citations by year
- 2026: 19 · 2025: 36 · 2024: 36 · 2023: 42 · 2022: 32 · 2021: 31 · 2020: 38 · 2019: 77 · 2018: 11 · 2017: 16 · 2016: 3 · 2015: 3 · 2014: 2 · 2012: 1
- FWCI
- 130.45
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Management Science (publishedVersion)
- Funders
- Texas Tech University
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy and Behavior
- Social Sciences › Psychology › Neuropsychology and Physiological Psychology › Aging and Gerontology Research
- Keywords
- financial literacy, cognitive aging, older adults, fluid intelligence, crystallized intelligence, cohort effects
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