Our financial smarts erode quickly after age 60

[arebelspy]

Also, the financial instruments available to an 80-year-old over his or her lifetime are different than what's out there now; the stock market was only for rich people back then, and most people kept their money in the bank.

That's exactly what I thought of, especially regarding the Roth. I KNOW those weren't around, and I doubt ARM mortgages were very common.

 

[haha]

Even so, if there is a decreasing ability to answer the questions "correctly" based on age, that's an indication of a problem. Heck, I can't tell you how many classes I passed and certifications I got putting down answers that I knew were wrong, but were what the authorities wanted the answer to be.

Unless, of course, the reason the oldsters were getting lower scores is that they don't believe the standard answers and didn't care enough to try to "pass". Cranky old folks could easily do that. Honey badger don't give a $#!%.

That is really my point. A lot of folks are still grade getters at age 60. It is disheartening.

The real test of financial ability is not how you answer somebody's arbitrary questions but how well you do at running your financial life. Unless of course the purpose is to perform a professional job in some specialized market segment, for example derivative securities.

Many highly successful retirees no longer have to think about these things at all. The family office takes care of that.

Ha

 

[ls99]

+1.

I rarely take any scored quizzes, and have burned enough training completion certificates and achievement awards to cover a good sized living room and ceiling.

Don't know how many Kilocalories they generated in the stove, but at least got some additional practical use out of them. Does that count as twofer?

Living well with what DW and I have is a wonderful reward. Especially no mortgages or car loans.

 

[arebelspy]

That is really my point. A lot of folks are still grade getters at age 60. It is disheartening.

The real test of financial ability is not how you answer somebody's arbitrary questions but how well you do at running your financial life. Unless of course the purpose is to perform a professional job in some specialized market segment, for example derivative securities.

Many highly successful retirees no longer have to think about these things at all. The family office takes care of that.

Ha

ANd would you say most people over 60 are passing your test?

The people on this board, yes. The average senior though?

I'd go so far as to suggest the ability to pass this arbitrary test and the ability to run your financial life are strongly correlated, even though the former test is more or less irrelevant to the latter.

 

[haha]

ANd would you say most people over 60 are passing your test?

The people on this board, yes. The average senior though?

I'd go so far as to suggest the ability to pass this arbitrary test and the ability to run your financial life are strongly correlated, even though the former test is more or less irrelevant to the latter.

Yes, perhaps so. I just think these tests are ridiculous. Why did we retire, to score ourselves since "the man" is no longer doing it for us?

Those of us who still have living parents can just ask Mom or Dad for a few strokes. Others could request the same from husband or wife.

Or join a weight loss contest at your gym, they will publically post your score weekly.

Ha

 

[SJ1_]

Interesting article and a 10 question quiz. I think most everyone here should do quite well on this test! I missed question 4 with a SWAG.

Our financial smarts erode quickly after age 60 - Robert Powell - MarketWatch

After reading the article I was expecting a lot harder quiz.

 

[ziggy29]

I don't know that "financial smarts" erode over time so much as it is that the oldest folks among us (on average) performed considerably less self-directed investing and may not be as likely to need to rely on personal investments to reach their retirement goals.

Also just noticed I'm in the "peak" age group (45-49) so I guess I'll start getting more financially stupid in the not-so-distant future...

 

[Katsmeow]

Age 57/100%

I'm sure my mother (in her 80s) would do terrible on the test. Most of the things asked about she has either never dealt with -- they didn't have 401ks or Roth IRAs when she was working -- or is so long ago to have irrelevance to her.

I do believe that studies generally support the idea of some cognitive decline with aging.

However, this study (based on the article which was all I read) doesn't prove it in the least.

When I read this sentence I almost couldn't believe my eyes.

“Our study is able to say that the decline in cognition is attributable to a decline in financial literacy,” said Finke. “The reason why we see these kinds of results is that people's ability to make relatively straightforward, objective, age-neutral type decisions declines with age.”

No the study doesn't prove that decline in cognition is attributable to a decline in financial literacy. The study may show a difference in financial literacy between people X age and people Y age. That is not the same thing as saying the difference is due to a decline in cognition. It could be due to simply a difference in base knowledge and exposure to certain information based upon age and what people were exposed to. (When my son -- adopted from Vietnam at age 8 -- had difficulty with a math question that was based upon events at a circus it didn't prove he couldn't do math -- rather he simply had no idea what a circus was as they didn't exist in the small rural village he had lived in)

Further, it is simply a guess to say that people's financial literacy declined. If I make a 100% on this test today and 20 years from now I make 60% then it might reasonable to hypothesize that my financial literacy has declined. Although there could be other reasons for the decline that decline in cognition. Some years ago I could no longer do algebra problems I did in high school. My cognition hadn't declined. I simply lost that skill due to lack of use. I had a need to take a course that required algebra so I relearned algebra easily so my capability of cognition hadn't changed.

However, we don't know that the people in their 70s or 80s scoring poorly would have ever scored higher. The people who are now 80 can't be assumed to have had the same financial literacy at age 40 as those people who are now age 40.

 

[steelyman]

I aced it as well. I got #4 right but I think I was forewarned from the prior posts here to be careful on that one

 

[arebelspy]

Seeing as clifp's mom is quickly becoming the benchmark on the forums, I'm waiting to judge until I hear what she got on the quiz.

 

[Independent]

Let's look at some of the topics:

#2 Auto loans
#3 Fixed vs. variable rate mortgage
#6 Best investment for a young investor
#7 401k plan contributions
#9 Insurance for single workers without children.

Why would anyone be surprised that people over 60 don't care about those things?

I haven't borrowed money for a car, or a house, or been a young investor, or contributed to a 401k plan, or been single and childless for (40, 30, 25?, 5, and 40) years, respectively.

 

[bentley]

Well, I aced it, but I'm only 59, however I look 65......so, does that count?

 

[Chuckanut]

Certainly, as one ages, most of us will loose some of our mental abilities. But, aside from that, I think investments is one area where age is a big help. I see these 20 and 30-somethings pontificating on the swings of the market, jumping in when things are going well and bailing out after a large correction. What is that about? Buy high, sell low?

Netflix is a great example. Six months ago they were singing its praises and driving the stock price to the moon. Today, one would think the company has failied completely and will be closing its doors next week. I always thought Neflix was a great company to be a cuastomer of, but not a great stock. The same is true of Apple. Today it is a darling, but even Apple can't go up for ever. But, they talk like it will never go down (remember real estate??). This time it's different!!!

Age has taught me to avoid individual stocks (unless I want Las Vegas excitement in my life), invest regularly, get my asset allocation right (still working on that), keep costs low, and rebalance once or twice a year.

Age has also taught me that for every John Templeton or Peter Lynch there are a thousand.... (you can fill in this yourself). I still remember John Templeton on WSW. Calmly advocating buying growth, diversification, patience, and then waiting for the rewards. Today it is John Bogle, another guy we can all learn from.

 

[TromboneAl]

Remember that financial smarts don't correlate perfectly with financial ability. Plenty of financial planners fail to save. Many who understand complex derivative vehicles pull their money out of the market during downturns.

 

[mountaintosea]

Hm... thanks for making me feel better than I probably am. Love taking a test when I get all the questions correct. Gives me a false sense of smartness, otherwise known as an ego boost.

 

[unclemick]

Anyone remember Henry Ford? - I don't know much but I know how to hire people who do.

Or something like that.

heh heh heh -

 

[RunningBum]

I got all 10, but #7 isn't right. A 401K doesn't shelter you from taxes, it just defers them. The definition I understand of a shelter is that it avoids taxes altogether. Maybe I'm wrong. In any case I understood what they were looking for, but I guess you'd better check back with me in 10 years when I'm 60.

 

[obgyn65]

One more reason to choose an annuity, in my view.

Our financial smarts erode quickly after age 60

 

[JOHNNIE36]

No erosion here - I answered all 11 questions correctly.

Then you got 110% MichaelB. Good for you. I'm 75 and only got a 100%.

 

[Dry Socks]

I got 100% but my mind kept wandering... must be getting older

 

[Texas Proud]

I got all 10, but #7 isn't right. A 401K doesn't shelter you from taxes, it just defers them. The definition I understand of a shelter is that it avoids taxes altogether. Maybe I'm wrong. In any case I understood what they were looking for, but I guess you'd better check back with me in 10 years when I'm 60.

No, most tax shelters are only tax deferment vehicles... there is very little you can invest in that avoids taxes altogether... the only one I can think of right now is the ROTH...

 

[Mysto]

I'm not any dumberer than I was before I were 60. In fact, I was dumberest in my 20s and 30s!

Seriously, I'm 67 in two months and I feel confident in my ability to leave my assets alone and let my allocation do the work. I don't think I really got financially smart until my 50's. Before that I thought I was smarter than the market - now I know better. Maybe wisdom is knowing you don't know.

Oh yes - I aced the test - where do I pick up my prize?

 

[kcowan]

The fact that older people did less well, doesn't mean that as people get older they'll do less well. It only means that right now, older people did less well on the test.

Bingo!

My Dad never had a credit card, paid off the mortgage 50 years ago, had a company DB pension, never had insurance, etc. Yet he was smart and could figure things out well into his 90s.

(PS got 100% and I am Canadian: 401Ks and Roth IRAs? Oh you mean RRSPs and TFSAs!)

 

[kcowan]

I got all 10, but #7 isn't right. A 401K doesn't shelter you from taxes, it just defers them. The definition I understand of a shelter is that it avoids taxes altogether. ..

It shelters them for as long as they are in the plan. Taking the money out will attract tax but only if it is above a minimum level, often lower tax than when it was put in. In that sense, it is a true shelter. Defer to me implies that you will pay the same amount, only later.

 

[rescueme]

No, most tax shelters are only tax deferment vehicles... there is very little you can invest in that avoids taxes altogether... the only one I can think of right now is the ROTH...

A Roth only avoids tax on gains (if any). You still pay tax up front...