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Age and Reactions to Financial Advice

How a person reacts to financial advice depends on age, according to a preliminary study conducted by The College of William & Mary’s Mason School of Business. Though fear is common motivator, young and older investors react differently when advice is given in abstract or concrete terms.

The researchers showed different sets of test advertisements to two focus groups to gauge their reactions. Each focus group encompassed approximately 750 people, split into “early workforce entrants” (ages 18–34) and “late workers” (ages 50–64).

The first group was surveyed to see how distance to retirement impacts behavior. The savings behavior for younger workers was influenced more by the time frame of the goal communicated in the ad, especially if the ad communicated a short- or long-term savings goal. Older workers, however, did not change their behavior when exposed to information on savings milestones. Researchers concluded that the further into the future retirement is, the greater the focus on abstract savings goals becomes.

The second study considered the impact of age, positive versus negative messages and abstract versus concrete messages. Younger workers were more influenced by ads with an abstract message, such as a total retirement savings goal. Older workers, conversely, were more likely to boost their savings if the ad had a concrete message, such as specific steps about how much to save from each paycheck and the type of fund to invest in. Both groups were more influenced when presented with a message warning about not saving enough, but only if the message was combined with an abstract (younger workers) or concrete (older workers) message.

The results have implications for how you communicate about investing. Younger family members should be encouraged to think about achieving their long-term goals, rather than being told to save a specific amount. Those of you near or in retirement should discuss the specific steps you are taking to achieve your goals with your family members. Additionally, if you work with an advisor, ask them to frame their guidance in either concrete or abstract terms (depending, of course, on your age).

Source: “Temporal Distance to Retirement and Communication Framing: Enhancing Retirement Financial Decision Making,” by Nicole Votolato Montgomery, Lisa R. Szykman, and Julie R. Agnew.


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