The Unsophisticated Sophisticated: Old Age and the Accredited Investors Definition

26 Pages Posted: 25 Jul 2015

See all articles by Tao Guo

Tao Guo

William Paterson University

Michael S. Finke

The American College

Chris Browning

Texas Tech University

Date Written: July 22, 2015


Accredited investors are able to buy unregistered securities such as private equity, venture capital and hedge funds with little regulatory oversight. This lack of oversight is justified because investors who meet the accredited investor thresholds ($200,000 annual income/$300,000 for a couple, or a net worth of over $1 million excluding primary residence) are assumed to be sophisticated enough to understand these complex and opaque securities. Some have argued that income and wealth thresholds are not necessarily an accurate proxy of financial sophistication.

We use financial literacy instruments from the Consumer Finance Monthly and from the Health and Retirement Study to explore whether accredited older households, who are more likely to experience age-related cognitive decline and who have accumulated significant lifecycle savings, are less financially literate than younger unaccredited respondents. In both data sets, we find that accredited households age 80 and older are more than 80% less likely than unaccredited investors age 60-64 to have high financial literacy scores. Respondents with less than a high school degree were more likely to have a high financial literacy score than older accredited respondents in a multivariate analysis. While accredited investors are more financially literate than unaccredited investors within each age group, older accredited investors had significantly and strongly lower financial literacy scores than younger unaccredited investors and the difference increased consistently with age.

Keywords: financial literacy, accredited investors, old age, private equity

JEL Classification: K22, D12, G18

Suggested Citation

Guo, Tao and Finke, Michael S. and Browning, Chris, The Unsophisticated Sophisticated: Old Age and the Accredited Investors Definition (July 22, 2015). Available at SSRN: or

Tao Guo

William Paterson University ( email )

1600 Valley Road
Wayne, NJ 07470
United States

Michael S. Finke (Contact Author)

The American College ( email )

Bryn Mawr, PA 19010
United States

Chris Browning

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

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