Study: With Age Comes Financial Wisdom

Do we get wiser as we age, or do our mental abilities decline? The answer is probably both, new research says.

Researchers from the University of California, Riverside, and Columbia University tested the decision-making skills and intelligence of 336 participants for a study published in Psychology and Aging. There were 173 participants between ages 18 and 29, and 163 between 60 and 82.

They were tested on basic financial literacy, debt literacy, how much they considered future financial situations, and their tolerance for investment risk. (You can find the tests and questions used beginning on page 59 of the study, although you won’t be able to easily grade yourself.)

Despite the loss of mental sharpness that comes with age, the study found that older participants performed as well or better than younger ones in every area.

The theory behind the results is that intelligence can be categorized in two ways: fluid and crystallized. Fluid intelligence is “the ability to generate, transform and manipulate information,” the study says. In other words, it’s the ability to respond to something new. Crystallized intelligence, meanwhile, basically fits the textbook definition of wisdom — “experience and accumulated knowledge.”

As we age, the study says, we lose fluid intelligence but gain crystallized intelligence. The latter can offset — partially or in full — the former. Certain tasks are best suited to each form of intelligence.

“For decisions that rely heavily on processing new information, it is likely that the negative effects of aging will outweigh its positive effects relatively early in middle age,” the study concludes. “On the other hand, if the decision relies on recognizing previously learned patterns in a stable environment, age may be an advantage.” Providing analogies to familiar tasks can help older people manage new ones, it adds.