Art by Eron Hare
lose “fluid intelligence,” or the capacity to process new information, as they
reach their 70s and 80s, according to a new study by the Center for Retirement
Research at Boston College (CRR).
retirees lacking effective money-management skills at risk of losing their
ability to manage financial affairs in their own best interest. In fact, the
CRR study found that “financial novices” in particular may need substantial
guidance in managing their assets as they reach retirement age.
challenge is obviously even greater for people who are at risk of developing
severe cognitive impairments, a group that which the CRR projects will grow to
include more than a third of people reaching their 80s. The combined decline in
fluid intelligence and diminishing financial capacity can make these groups
especially vulnerable to fraud and financial abuse, highlighting the need for a
trustworthy professional to step in.
The CRR says
most financial novices will bounce back with the right guidance. It also
concludes that most people in their 70s and 80s will still be capable of making
sound financial decisions because financial capacity relies largely on
accumulated knowledge, which remains intact for people experiencing normal
cognitive aging. This knowledge is reinforced through financial actions such as
understanding how to read, pay and dispute bills; knowing when and how to use a
check; and understanding concepts such as debt, insurance and asset returns.
findings could be of growing interest in light of the quantity of research
showing that many Americans are challenged by financial wellness issues.
Moreover, if they fail to develop financial judgment, which requires a
combination of accumulated financial knowledge and fluid intelligence, even
those with only mild cognitive impairment will be at risk.
problems multiply for those with full-blown dementia, most common among people
in their 80s and 90s, the study finds. This is particularly concerning as
several studies show Americans’ longevity is increasing. Advisers with clients
undergoing mental dips should pay particular attention to how these individuals
comprehend financial tasks.
suffering from only early stages of dementia have trouble performing tasks
requiring financial judgment, the study says. One study cited by CRR found that
95% of adults with no cognitive impairment were able to manage their finances
compared with 82% with mild cognitive impairment and just 20% for those
No cognitive impairment
Mild cognitive impairment
Source: Center for Retirement Research at Boston College