The older the wiser? The influence of normal aging on financial decision-making.
Older adults make decisions in a different way than younger adults. When we get older, even when we are not affected by a neurological condition, certain cognitive functions decline which of course has an effect on the capacity to make decisions. Deliberative decisions, which usually rely on cognitive functions such as working memory and inhibition, are therefore more difficult when becoming older. On the other hand, normal aging is often accompanied by more knowledge, personal experience and more stable emotions and older adults might rely more on their emotions or affect when making decisions than younger adults.
Financial decision-making, such as shopping or paying bills, is a specific type of decision-making which is crucial for an autonomous, independent life. However, there are several reasons why some people may be less able to deal with money than others, for example due to a reduced decision-making ability as a result of a neurological condition such as dementia. Normal aging might have also negative, as well as positive effects, on (financial) decision-making. Having difficulties with making financial decisions can have major consequences for an individual’s life, such as debts, poverty or financial abuse.
It is, however, difficult to determine whether someone is sufficiently financially competent, as there are no objective financial tests available that examine financial decision-making. Therefore, a comprehensive new test battery has been developed, which provides insight into several aspects of financial decision-making. A few tests of this battery provide information about basic skills such as handling coins, paying bills or the ability to identify and reason about several financial options. However, also more complex tests were included examining, e.g., financial decision-making with implications for the future or the ability to apply decision-rules. To get a better understanding of the effects of normal aging on these aspects of financial decision-making 180 adults between the ages 18 and 87 years were assessed. The study examined the influence of increasing age on the different aspects of financial decision-making, wherein we controlled for variables such as gender, education or income.
It turns out that – in general – older participants were equally able to make financial decisions as younger individuals. Regarding several aspects of financial decision-making, such as basic financial skills and the use of specific financial decision styles, no influence of normal aging was found. However, normal aging was negatively related with impulse buying. In other words, younger participants were more inclined or felt a stronger urge to make impulse purchases than older participants. Furthermore, on another test which focused on applying decision-rules, such as buying a television that meets certain requirements, also a strong effect of normal aging was found, i.e. older adults showed more difficulties with applying decision rules than younger adults.
Interestingly, it was also demonstrated that many aspects of financial decision-making show no or only weak correlations with standard neuropsychological measures, which are now-a-days often used to assess financial abilities (in support of the judgment of the family or a doctor). The above-mentioned result shows the importance of developing an objective and standardized test battery for assessing someone’s financial decision-making abilities. More research is, therefore, needed to validate the current test battery and to investigate financial decision-making in people who might be vulnerable for a decline in financial decision-making abilities, such as patients with dementia. In the future, this test battery could then provide support in clinical practice in the assessment of the capacity to make financial decisions.
Bangma, D. F., Fuermaier, A. B. M., Tucha, L., Tucha, O., & Koerts, J. (2017). The effects of normal aging on multiple aspects of financial decision-making. Plos one, 12(8). DOI: 10.1371/journal.pone.0182620