As we age, our brains don’t work as well as they used to. This is particularly true when it comes to making financial decisions.
A recent study by the Texas Tech Financial Literacy Assessment project showed that our ability to understand financial concepts and make good decisions based on that information peaks in our 50s. After age 60, our abilities decline by about 2 percent per year. By age 90, the typical person has about half the cognitive financial abilities that they had at 65.
Ironically, the study also showed that our confidence in our financial decision making ability rises as we age. In other words, we get more and more confident even as we become less and less able. How does the old saying go? Often wrong, but never in doubt?
Since aging is a reality for all of us, what can we do to protect our finances from self-inflicted wounds? Here are a few suggestions:
- Hire a financial adviser that is trustworthy and younger than you.
- Have a trusted family member that you can take to meetings with you.
- As much as possible, have your finances on autopilot after 60.
- Have a financial power of attorney in place so that someone can step in to help you if needed.