Aging, Financial Literacy, and Fraud

Abstract

This study examines how cognitive changes associated with aging impact the financial decision making capability of older Americans. We find that a decrease in cognition is associated with a decrease in financial literacy. Decreases in episodic memory, perceptual speed, and visuospatial ability are associated with a decrease in numeracy, and decreases in episodic and semantic memory are associated with a decrease in financial knowledge. A decrease in cognition also predicts a drop in self-confidence in general, but importantly, it is not associated with a drop in confidence in managing one's own finances. Participants experiencing decreases in cognition do show an increased likelihood of getting help with financial decisions; however, many participants experiencing significant drops in cognition still do not get help. This study also examines the risk factors for an older American being victimized by financial fraud. We find that overconfidence in one’s financial knowledge is a significant predictor of the odds of falling victim.