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Wisdom does come with age

  • …or at least, this is what scientists say
    Although older people’s brains slow down, experience and knowledge more than make up for it – helping them make better financial decisions, a study shows.
    It is the first time two types of intelligence – fluid and crystallised – have been tested among different age groups.
    Fluid intelligence is the ability to learn and process information while the latter refers to experience and accumulated knowledge.
    A series of economic tests found the older group of 163 participants aged 60 to 82 were better than the 173 younger counterparts of 18 to 29.
    This included ‘temporal discounting’ (how much people discount future gains and losses), loss aversion (how much the valuation of losses outweigh gains of the same magnitude), financial literacy (understanding financial information and decisions) and debt literacy (understanding debt contracts and interest rates).
    The older group exhibited greater patience and better financial and debt understanding.
    They were also somewhat less afraid of losses but the result did not reach standard levels of significance.
    The study, published in the journal Psychology and Ageing, said past research has found fluid intelligence declines with age but provides no definitive conclusion as to whether decision-making abilitie

Dr Ye Li, of California University in Riverside, said: ‘The findings confirm our hypothesis that experience and acquired knowledge from a lifetime of decision making offset the declining ability to learn new information.’

The average age of the world’s population is rising so understanding how well older adults make decisions is crucial.

They are faced with an increasing number of important choices related to their retirement finances and health care.

As new laws increase the minimum retirement age people also stay professionally active later in life with older adults holding many key leadership roles.

Dr Li said older people could be helped by being provided aids to ease the burden on their decreased fluid intelligence – such as a calculator or advisor – when making significant financial decisions.

On the other hand, younger adults could benefit from more financial education so they can gain experience of big financial decisions before making them in the real world.

Dr Li and colleagues are planning a follow-up project asking 18 to 80-year-olds specific questions about selecting a health care policy, when to start drawing social security, and how to pay off credit card balances.

 

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