Investigating the Influence of Cognitive Decline on the Quality of Financial Decision-Making in Older Adults: The Case of Self-Managed Superannuation Funds
29 Pages Posted: 7 May 2013
Date Written: May 6, 2013
Abstract
As populations age, increasing numbers of older people are controlling significant financial assets at the same time as the level of choice in retirement funding arrangements also increases. The population faced with these investment decisions are the same population susceptible to cognitive decline with advancing age and particularly by way of dementia and Alzheimer’s. This study explores the relationship between cognitive ability, retirement self-efficacy, financial literacy and financial decision-making in a group of 103 SMSFs Managers aged 51 and over. Demographic variables (age, gender, education, value of superannuation), psychosocial variables (risk aversion, mastery), cognitive ability as determined by the Wonderlic, and self-reported dementia symptoms according to the HABC scales were explored as predictors of financial literacy, decision-making and retirement self-efficacy. Males tended to report higher levels of mastery than women, although this did not predict financial literacy. Women tended to involve family and friends more in financial decision-making, while men and women consulted with financial advisers equally. Cognitive ability ( ), Behavioural dementia symptoms (-) and total assets ( ) predicted financial literacy while retirement self-efficacy was best predicted by age ( ), cognitive ability ( ), financial literacy ( ), sense of mastery ( ) and self-rated behavioural dementia symptoms (-). Those with self-reported cognitive dementia symptoms appear more vulnerable to making poor financial judgments. Findings have important implications for financial decision making and the monitoring of on-going cognitive decline.
Keywords: retirement, cognitive ability, financial decision-making, dementia, ageing, pensions
JEL Classification: D14, D83, G11, G29, J32
Suggested Citation: Suggested Citation