Aging, Cognition, and Money

Aging is an inevitable process, bringing with it not only physical changes but also cognitive shifts that can profoundly influence everyday life. Two recent papers, "Are Older People Aware of Their Cognitive Decline? Misperception and Financial Decision Making" and "Ageing Populations, Financial Capability and Household Financial Decision Making in the Context of Neo-Liberal Social Policy Systems", explore an under-discussed yet critical aspect of aging: how older adults perceive and manage financial decisions amidst cognitive decline and shifting household dynamics. These findings don’t just reveal gaps in individual awareness but also highlight broader systemic challenges tied to aging societies.

One of the key findings of the first paper is that older adults often underestimate the extent of their cognitive decline. This misperception can lead to poor financial decision-making, particularly among those who were once active stock market investors. The research shows that individuals who experience severe cognitive decline without realizing it are significantly more likely to face wealth losses compared to those who are aware of their cognitive changes or who did not experience a decline at all.

Why does this happen? The study attributes these losses to bad financial decisions rather than rational disinvestment strategies. For instance, someone unaware of their declining memory might forget to review investment portfolios, fail to respond to market changes, or fall victim to financial scams. These decisions disproportionately affect wealthier individuals, whose higher stakes in financial markets leave them vulnerable to greater monetary losses.

Building on this, the second paper digs deeper into how cognitive decline intersects with household financial management. Historically, financial roles within households have been heavily gendered, with men often taking on the “breadwinner” role and managing finances. Even in older age, these dynamics persist, leading to complex challenges when the partner in control of money begins to experience cognitive or physical health decline.

Both papers underscore the urgent need for a multidisciplinary approach to tackle the intersection of aging, cognition, and financial decision-making. Some proposed directions include:

  • Better Awareness Campaigns: Educating older adults and their families about cognitive decline and its impact on financial decisions.
  • Financial Safeguards: Strengthening consumer protections against scams and creating systems to monitor financial behavior for signs of vulnerability.
  • Revisiting Financial Powers of Attorney: Ensuring these legal tools are robust and truly serve the individual’s interests, rather than being misused or ineffective.
  • Gender Equity in Financial Education: Addressing long-standing inequalities in financial literacy and decision-making power within households, particularly for women.

These issues extend beyond individual households and demand broader societal and policy-level solutions. Governments, financial institutions, and social care systems must collaborate to create frameworks that not only support older adults but also account for relational dynamics within households.

REFERENCES

Mazzonna F, Peracchi F. Are Older People Aware of Their Cognitive Decline? Misperception and Financial Decision-Making. Journal of Political Economy. 2024 Jun 1;132(6):1793-830. ssrn-3699842.pdf

Price D. Ageing populations, financial capability and household financial decision-making in the context of neoliberal social policy systems. InA Research Agenda for Financial Resources within the Household 2024 Jan 18 (pp. 193-207). Edward Elgar Publishing.

Austen S, Preston A. A Comment on the Financial Literacy, Financial Risks and Financial Challenges Facing Older Australians. Australian Economic Review. 2024 Mar;57(1):82-9.

https://www.wsj.com/personal-finance/retirement/cognitive-decline-retirement-savings-4672b604

https://news.ycombinator.com/item?id=42814982

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