Confidence in Financial Skills Unaltered by Worsening Cognitive Skills

Analysis of an ongoing study by Rush University Medical Center concluded that older adults experiencing measured declines in their cognitive skills remain confident about their financial management skills.

Older adults experiencing measured declines in their cognitive skills remain confident about their financial management skills. This was the finding of an analysis of an ongoing study conducted by Rush University Medical Center.

The study of older adults began including a module on financial literacy, confidence and responsibility for making financial decisions in 2010. Individuals diagnosed with dementia at the time of their first decision-making assessment were excluded. The study group was primarily well-educated women with an average age of 83.

Participants were tested on their ability to do basic calculations, their understanding of compound interest and their knowledge of concepts such as the relationship between bonds and interest payments. Participants were then asked how confident they were about their abilities to manage day-to-day financial matters. Finally, participants were asked who was primarily responsible for making their day-to-day financial decisions.

The study’s results found a noticeable drop in self-confidence when cognitive skills significantly declined. Yet, the confidence among the same participants about their level of financial knowledge declined much less. More importantly, there was essentially no change in a participants’ belief about their abilities to manage their own finances. These participants failed to recognize, or perhaps accept, the fact that their reduced cognitive abilities were impairing their ability to properly manage their finances.

There was, however, a “large and statistically significant increase in the likelihood of getting help with financial decisions” among those with reduced cognitive scores. What wasn’t tracked is who was providing the assistance, whether the help was sought or was unsolicited and whether there was any benefit from the assistance. Even though many participants received help with their finances, more than half of study participants with cognitive impairment remained primarily responsible for their finances. Furthermore, more than half received no help other than from their spouse.

The results show the importance of establishing a plan for getting assistance before cognitive impairment incurs. Powers of attorney, trusts and a system of checks and balances (e.g., having a trustee report to one’s children) can be helpful in preventing financial harm and fraud from occurring.

Source: “How Does Aging Affect Financial Decision Making?” Keith Jacks Gamble, Patricia A. Boyle, Lei Yu and David A. Bennett, Center for Retirement Research, January 2015.