Fluid Intelligence
Cognitive Theory
Word Recall Test
(immediate and delayed average, 2010 Health & Retirement Study)
6
Episodic Memory
5.5
5
4.5
4
3.5
3
60
(Source:)
65
70
75
80
85
90
Rates of cognitive impairment by Age
(Source Agarwal, Driscoll, Gabaix and Laibson, 2010)
80
70
60
39
50
40
Cognitive impairment,
not demenita
Dementia
29
30
20
10
0
37
16
24
5
71-79
80-89
90 +
Interest Rates on Loans
Financial Literacy
(TTU Financial Literacy Assessment Project)
 Examples of questions:
 8. Savings accounts and money market accounts are







most appropriate for
1 Long-term investments like retirement
2 Emergency funds and short-term goals
3 Earning a high rate of return
17. If you have an insurance policy with a higher
deductible, the premiums will be
1 Higher
2 Lower
3 The same
Investments
 13. The benefit of owning investments
that are diversified is that it
 1 Reduces risk
 2 Increases return
 3 Reduces tax liability
 15. The main advantage of a 401(k) plan is that
it:
 1 Provides a high rate of return with little risk
 2 Allows you to shelter retirement savings from taxation
 3 Provides a well diversified mix of investment assets
Age and Literacy
Literacy and Confidence
90
Financial Literacy
Confidence
80
70
60
50
40
30
20
10
0
60
65
70
75
80
85
By Topic Area
Basic
Borrowing
Investment
Insurance
3.5
3
2.5
2
1.5
1
0.5
0
60
65
70
75
80
85
Equity allocation and cognitive decline
Percent change in Equities 2008-2010 by Word Recall
0
Lowcog
Avgcog
Highcog
-5
-10
-15
-20
-25
-30
-35
-40
Median
Who Pays for Financial Advice?
(By Age & Type of Advice)
40
35
30
25
20
15
10
5
0
<35
35-44
45-54
Transaction-based
55-64
Comprehensive
(Source: Finke, Huston, and Winchester, 2011)
65+
Accepting Cognitive Aging
 Decline in financial decision making ability mirrors
decline in cognitive ability in advanced age
 Importance of planning for cognitive decline
 Similar to decline in driving
 But, when drivers given objective evidence of
declining skills, they change behavior (Holland & Rabbitt, 1992)
Thank You!
Michael Finke
Michael.Finke@ttu.edu
www.pfp.ttu.edu