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.

Sign up for our free newsletter

Like this article? Sign up for our newsletter and we'll send you a regular digest of our newest stories, full of money saving tips and advice, free! We'll also email you a PDF of Stacy Johnson's '205 Ways to Save Money' as soon as you've subscribed. It's full of great tips that'll help you save a ton of extra cash. It doesn't cost a dime, so why wait? Click here to sign up now.

Investing made simple

Betterment is the easiest way to get started investing.

Click here to learn more (and get $25 free!)

You don't need to be a Wall Street Wizard to build a quality stock portfolio. Money Talks News has teamed with Betterment to make it simple. And there are no fees or minimums to get started.

Simply drag a slider to decide how much risk you're willing to tolerate, and Betterment will build a portfolio for you. Why not try it now?

Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.