Fluid Intelligence

Cognitive Theory

Word Recall Test (immediate and delayed average, 2010 Health & Retirement

Study)

(Source:)

60 65 70 75 80 85 903

3.5

4

4.5

5

5.5

6

Episodic Memory

Rates of cognitive impairment by Age(Source Agarwal, Driscoll, Gabaix and Laibson, 2010)

71-79 80-89 90 +0

10

20

30

40

50

60

70

80

5

2437

16

29

39

Cognitive impair-ment, not demenitaDementia

Interest Rates on Loans

Financial Literacy (TTU Financial Literacy Assessment Project)

Examples of questions:8. Savings accounts and money market

accounts are most appropriate for1 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 be1 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

60 65 70 75 80 850

10

20

30

40

50

60

70

80

90Financial Literacy Confidence

By Topic Area

60 65 70 75 80 850

0.5

1

1.5

2

2.5

3

3.5

Basic Borrowing Investment

Equity allocation and cognitive decline

Lowcog Avgcog Highcog

-40

-35

-30

-25

-20

-15

-10

-5

0

Percent change in Equities 2008-2010 by Word Recall

Median

Who Pays for Financial Advice?(By Age & Type of Advice)

(Source: Finke, Huston, and Winchester, 2011)

<35 35-44 45-54 55-64 65+

0

5

10

15

20

25

30

35

40

Transaction-based Comprehensive

Accepting Cognitive Aging

Decline in financial decision making ability mirrors decline in cognitive ability in advanced age

Importance of planning for cognitive declineSimilar to decline in drivingBut, when drivers given objective evidence of

declining skills, they change behavior (Holland & Rabbitt, 1992)

Thank You!

Michael FinkeMichael.Finke@ttu.edu

www.pfp.ttu.edu