By Richard Eisenberg, Next avenue
Having trouble managing your finances, research shows, can be an early sign of cognitive difficulties and even dementia. But two fascinating recent studies suggest just how important it can be for your mental health. and your wallet to maintain your financial literacy and confidence as you age.
The important takeaway from these studies is that the decline in financial literacy is not just about financial decision making. “This has the potential to have a bigger impact,” said Gary Mottola, research director of the FINRA Investor Education Foundation and co-author of the studies. (FINRA is the self-regulatory body for brokers.)
“It’s not just what you know, but how you to feel on what you know. “
Mottola and Rush University Medical Center professors Lei Yu and Patricia Boyle examined data from around 1,000 people (average age: around 80) as part of the Rush Memory and Aging Project. Participants of diverse racial and wealthy backgrounds – mostly women – lived in retirement communities, subsidized housing, churches, and social service agencies in the Chicago metro area.
Let me tell you about each of the studies and what we and our parents can learn about money management later in life.
The impacts of declining financial literacy
For “Adverse Impacts of Declining Financial Literacy and Health in Old Age,” researchers looked at annual assessments of participants’ financial literacy and health for a period of up to 10 years. Although these literacy levels generally declined over time, “a small proportion of participants” (17%) were able to maintain their literacy levels.
However, those whose financial and health literacy declined more rapidly were more susceptible to scams and poorer decision-making.
The researchers conclude: “Efforts to mitigate the decline in financial and health literacy can promote the independence and well-being of older adults. “
Says Mottola: “The decline in financial health literacy predicts many aspects of a person’s life: decision making, well-being, susceptibility to scams and cognitive health.
The importance of having confidence in money
In “Confidence in Financial Literacy and Cognitive Health in Older Persons,” the authors discovered that it’s not just what you know about money management, it’s how confident you feel about it. Study participants did not have dementia on their first literacy assessment and were followed up annually.
During follow-ups, 18% of people developed Alzheimer’s dementia. Financial confidence (as well as literacy) was associated with a lower risk of Alzheimer’s disease. While 78% of participants rated their confidence in financial literacy as comparable to what the researchers predicted based on their actual knowledge, 9% were overconfident and 13% were unconfident. Those who were less confident had a higher risk of developing Alzheimer’s disease and a faster cognitive decline.
Boyle noted, “It’s not just what you know, but how you to feel on what you know. “
Avoiding dementia, if possible, can be of great help to your financial security and that of those around you.
The financial impact of cognitive decline
As stated in the RBC Wealth Management US report “Preparing for Expectation: The Financial Impact of Cognitive Decline”: A diagnosis of dementia can be financially devastating, often exceeding $ 750,000.
“Not only is there a significant financial impact for the person affected by the disease,” the report says, “but also for their caregivers. Yet few families factor this impact into their wealth plans.”
RBC Wealth Management-US and Aon
“We’re trying to raise awareness that cognitive decline is something to plan for,” said Angie O’Leary, manager of wealth planning at RBC Wealth Management-US, based in Minneapolis. “We now have a group in our organization whose only job is to help counselors with potentially at-risk clients.”
“Literacy is a skill that we know can be improved throughout life. “
For O’Leary, this subject is personal. A few years ago, she noticed that her stepfather’s bills and financial statements were strewn around the house. “There were envelopes with checks that weren’t sent. Some with stamps and some without,” O’Leary said. “It was the first sign that something was wrong.”
It took a year to sort out all of her stepfather’s finances, O’Leary noted. He died of complications from dementia.
Mottola offered this advice: “Declining financial literacy could be a harbinger of financial results. So monitoring it could be a way to spot potential problems.
It would also help, he added, if older people received – and continued to receive – financial education as they got older.
How to Maintain Your Financial Literacy and Self-Confidence
“Literacy is a skill that we know can be improved throughout life,” Boyle noted. So, she said, “People should continually try to increase their own knowledge. Things change in the financial world and you have to keep pace.”
It might mean reading financial publications, books, and articles on websites, or sharing them with your parents. The websites of Security and Trade Commission and FINRA also offer free and useful articles to improve your financial literacy.
If you invest through mutual funds, exchange traded funds, or an employer’s 401 (k) pension plan, read the materials you receive about the investment choices and decisions made by investment managers.
It is of vital importance.
Only 28% of people surveyed in an Allianz Global Financial Literacy and Risk Survey in November 2020 answered all four questions correctly. “People with higher financial literacy are better equipped to navigate economic uncertainty,” the Allianz investigative report said.
And the new Schroder’s Global Investor Study 2020, which surveyed 23,000 investors, found that 38% did not understand the options available to them with their retirement savings.
The more you and your parents know about money matters, the more likely you are to have confidence in financial literacy. “Everyone has the potential to increase their self-confidence,” Boyle said.
And if your parents use a financial advisor, Mottola said, have them list you as a “trusted contact” on their account so that you will be contacted if the money pro notices cognitive issues.