Lower Financial Literacy and Higher Self-Confidence … A Toxic Combination

In the past I have noted that people are better served by educating themselves and managing their own money. My belief is that the services of a financial advisor should only be engaged if an individual has very specific questions or is seeking specific guidance and in all cases, the fees being paid to such an advisor should be kept to a minimum.

There is another occasion, or more accurately, a period when outside counsel should be sought … as individuals age and their mental acuity declines. Experts say that older adults should have a “financial” checkup the same time they have annual doctor visit.

Senior Citizen

Previous studies have shown that as humans age, cognitive declines are inevitable. Now, a recent study by researchers at the University of Missouri and Texas Tech University has confirmed that this cognitive decline extends into financial literacy. The researchers also found that older individuals retain a strong sense of self-confidence, which could add to the problem, leading to significant mistakes when making financial decisions.

“Mixing a decline of financial literacy with an increase in self-confidence is a toxic combination,” said John Howe, professor and chair of the Department of Finance in the Trulaske College of Business. “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.”

In the study, Howe and his 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 …

Read the news release in its entirety at News Bureau, University of Missouri.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

6 Comments

  1. I have never thought of this. I wonder how wise it is to trust in a money-smart young family member – son, daughter, niece, nephew – as opposed to a professional? I find this an uncomfortable topic, but it’s good to know I’ll have to face it eventually.

    • I would definitely lean toward a family member. However, it wouldn’t be blind trust and expectations. As I noted in my reply to Preston, I am a big believer in the idea that families should push each other to be financially literate, and more importantly, plan and manage the execution of financial goals. I talked about finances being a family affair in a prior post.

      It seems to me it doesn’t have to be a family member or a professional. Perhaps it can be a combination of the two. I can easily imagine a scenario where the bulk of the finances are manage by a professional, however, a family member – or members – have some type oversight and auditing capability. The key to that working? A family that actively engages in learning and talking about money management. The responsible family members would have to know what it is important, what to look for, expected results, etc.

      Thanks for stopping by and sharing your thoughts, my friend.

  2. Good research! I always recommend a trustworthy family member (i.e. child) should have an annual review of an elderly person’s finances. It’s sad when they are the target of thieves at the worst or bad advice at the best.

    • Indeed. The aging and cognitive decline of family members is another important reason why all family members should be financially literate; and discuss financial goals and planning on a regular basis. No doubt that it should all be a family affair.

      Thanks for taking the time to stop by, Preston and share your thoughts.

  3. Pretty interesting. Never thought about financial literacy declining with age. Finding somebody with our best interest as we age is key. Could be kids or an adviser we trust.Though provoking post!

    • “Finding somebody with our best interest as we age is key.” Exactly. There is more to financial planning than accumulation. Efficient decumulation (withdrawal) and potential incapacitation are two overlooked pieces of comprehensive retirement planning.

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