Stories | November 26, 2009

Older but not (necessarily) wiser

Old age (even from 53) can be bad for your wealth. Appointing advisers - even family members - may not solve the problem.

Old age can be dangerous for your wealth, new research suggests. The study from the US examined the effect of dementia and aging on financial decisions made by older people.

U-shaped skills
It should not be surprising that those affected by dementia make mistakes with their finances. However, the research also suggested people's financial capabilities may start to decline from around age 53. It says there seemed to be a U-shaped pattern with making financial mistakes as people in middle age made fewer than younger or older adults. Common financial mistakes included suboptimal use of credit card balance transfer offers, misestimation of the value of homes and excess interest rate and fee payments.

The four researchers suggested their study raised questions about the way financial products are regulated. But a "selection effect" could have swayed the data as those who borrow money at an older age may not represent the older age population in general.

Getting children to help may not be the best idea
The research carried implications for the way that people manage their finances. Appointing advisers - even family members - may not solve the problem. The researchers noted "family members often make problematic trustees (as illustrated in cases ranging from King Lear to Brooke Astor)".

Move to less risky assets as you age
The challenges with ageing and saving are not confined to the US - individuals in any country who provide for at least part of their own retirement should take note. This research supported arguments that people should adopt a "lifecycle" approach to managing their retirement funds. As the OECD explains, "lifecycle investing involves a move from riskier assets, such as equities, to less risky assets, such as deposits and government bonds, as people near retirement". People who follow the lifecycle investing plan would be less exposed to inappropriate investments as they approach retirement and when they retire.

Ian Bright
Ian Bright

Senior economist at ING
.(JavaScript must be enabled to view this email address)

42 blogs

If you have a question for Ian, ask him here.

EconomicsPersonal financeRetirementPensionsLife cycle

Have your say

Should banks incentivise you more to boost your savings?