SENIOR MOMENT: When deciding how to handle their money, older people often make less profitable decisions.
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The invitations come in the mail, covered in large print: "Investment Workshop—Free Gourmet Lunch!" "Avoid the Biggest Financial Mistakes Seniors Make!" "Protect Your Financial Security!"
At the lunch, the salmon is accompanied by an investment pitch, with reminders that "there's a high rate of return," and "only a few opportunities are left."
Many of these free lunch seminars are scams aimed at retirees. Nearly six million seniors have attended such seminars in the past three years, the senior advocacy group AARP estimates—although conventional wisdom says that there's no such thing as a free lunch. Despite their years of experience, however, older people are more likely to err in their financial decisions by overemphasizing potential benefits and downplaying potential risks. Now insights from psychology, economics and neuroscience may help us understand why and how those errors occur.
Older adults aren't as upset by possible financial losses as young people are, psychological research has shown, and Stanford University researchers found in a recent brain-imaging study that seniors' brains don't anticipate a loss as much as younger ones do. That might be leading them to make less rational—and therefore less profitable—choices. But the news isn't all bad; a better understanding of why these mistakes happen may make it easier to prevent them.
How aging affects financial choices
Economists have studied how aging impacts real-life financial behavior. Harvard University economist David Laibson and his colleagues looked at a variety of choices people make about loans and credit cards, in a study in 2009. They found that people on the younger and older ends of the age spectrum ended up making more mistakes—that is, decisions that cost them money—than did middle-aged people. For home equity loans, for instance, 25-year-olds and 80-year-olds had loans with annual percentage rates of about 6 percent; 50-year-olds had rates of 5.5 percent. On average, across the different types of choices, people made the fewest mistakes at age 53.
Good financial choices require both strategy and execution, an understanding of how financial systems work, and the mental acuity to find and choose the best option. Strategy becomes easier with age, Laibson suggests, but the execution gets harder. "Experience brings improvement," he says, "but after a point, that accumulation of experience starts to get overwhelmed by decline of cognitive function."
This hypothesis matches up with what psychologists know about cognitive aging. "There's a pretty straightforward story," says Scott Huettel, a cognitive neuroscientist who studies decision-making and aging at Duke University's Center for Cognitive Neuroscience. "More or less all of our cognitive abilities decline throughout the life span." A large body of research has shown that a wide variety of skills, including memory, analytical reasoning and processing speed, decrease as we age. The one thing that stays constant or even increases, Huettel says, is crystallized intelligence, a person's accrued knowledge about the world—in other words, experience.
But it's not just memory and reasoning that matter. "We use our gut feelings and our emotions to guide us to make decisions," says Mara Mather, a psychologist who studies aging, emotion and memory at the University of Southern California School of Gerontology. Contrary to stereotype, older people generally feel more optimistic than young people do, and are more likely to focus on the potential upsides of a situation. As people age and begin to feel that their time is limited, some researchers suggest, they seek out emotional fulfillment. This tendency to focus on the positive changes the decisions older people make.
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8 Comments
Add CommentI would imagine this is why the Tea Party demographic is age 65 and over. And I'm sure this knowledge of susceptibility to scams on the part of the elderly will be be a serious consideration in all political efforts and in advertising from here on out.
Reply | Report Abuse | Link to thisI realize that your wording is cryptic so I can only guess at what you meant to say but it sounded to me like you're saying that the Tea Party is mostly comprised of individuals who are 65 and over.
Reply | Report Abuse | Link to thisThat didn't ring true to me so I did some research and found a Gallup poll that breaks down the demographic (in the classic sense of the word) of the Tea Party. I won't go into much detail since the details can readily be found but they state that only 21% of the demographic is over 65.
Not only is that not a majority, it's not even a plurality (people 30-45 represent the plurality with 34% of the demographic). This can be directly compared to the same age group comprising 36% of all American voters. Interestingly, people over 65 account for 20% of all American voters.
I'm curious to know where you came up with your statement.
I couldn't agree more!
Reply | Report Abuse | Link to thisDolmance got slapped down by Wikipedia for not citing sources.
Reply | Report Abuse | Link to thisGoogle the name and see...
What is it with people like Dolmance, that have to take one topic and try to equate it with a different topic that is not in anyway associated with the first topic? Nothing in the article mentions anything to do with the Tea Party, yet Dolmance comments as if the article does. The Tea Party is mainly about motivating people to educate themselves on the facts of any situation and understand what is going on around them, before reacting. The Tea Party's stance is that main people act without understanding a situation or researching facts. For example: Some people vote based solely on the influence of how another person in their family, circle of friends, or co-work is voting, just so the person can feel like they are part of the "in" crowd. Yet Dolmance, who apparently does not like the Tea Party group, did everything in his or her power to prove the Tea Party correct. Dolmance, you made an assumption that the majority of the Tea Party was riddled with elderly people. You did so without proving yourself! You did exactly what the Tea Party group is claiming, you were lazy and did not fact check, before reacting. Get real, If you are going to get mad at the Tea Party for calling out lazy people, and you want to make a claim that the Tea Party is unjustified; Do you seriously think equating one person or group to another person or group without proof is the correct way to prove the Tea Party is wrong? In actuality,r you statement makes you seem like a very discriminative person. Not only did you discriminate against the Tea Party group, but you also discriminate against elderly people, by ASSUMING the majority of elderly people involve themselves with the Tea Party. Do you also assume the majority of elderly people like the game of Bingo too?
Reply | Report Abuse | Link to thisPerhaps Dolmance is just trying to find a reasonable explaination for Tea Partiers. I really didn't think he was trying to be factual, but rather puzzled about why anyone belongs to the Tea Party group. I for one, can't fathom it. Satire is truly lost on those folks.
Reply | Report Abuse | Link to thisBikada, You missed my point...What do the Tea Partiers have to do with the article above? There is no mention in the article about the Tea Partiers. It would have been just as strange if Dolmance tried to equate elderly people with things like balloons, kites, or orchids. There are is no mention of those things in the article either, so it would be absolutely silly to talk about them or equate them with the elderly, as far as this article is concerned. Now as far as YOUR comment, "Satire is truly lost on those folks." is unjustified unless you can prove that you know each and every person in the Tea Party group. That would be just as bad if someone said that you and Dolmance have no common-sense, since both of you seem to think it is o.k. to equate a true subject matter of an article with random things that have no significances with the article. Do yourself a favor prove that you have common-sense, go find an article somewhere else on the internet that has to do with Tea Partiers, and leave your Tea Party comments with those articles, NOT THIS ARTICLE!
Reply | Report Abuse | Link to thisIam 76 year old,instinctively I know my time is limited so I do not care about loss, when I invest or gamble it is only for thrill.At this age loss or gain has no proper meaning,for whom to earn?so old people do all thing at this age for thrilling.At least Iam doing.
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