Do Financial Decisions Get Better With Age?

David Allison, provided by Investopedia

You hear it all of the time, "age is nothing but a number", but what does age do to your ability to make financial decisions? As droves of baby boomers approach retirement, they will be making increasingly important decisions regarding their finances. Read on to learn how aging can affect your ability to make financial decisions, some of the behavioral traits that older investors exhibit when making decisions, and some tips on how to avoid the possible financial pitfalls associated with aging.

The Age of Financial Treason?
According to the study "The Age of Reason: Financial Decisions Over the Life-Cycle with Implications for Regulation", the average person's peak financial decision making age is around 53 years old. The authors of this study surveyed the life-cycle patterns of financial mistakes using a database that measures ten different types of credit behavior. The financial mistakes noted included suboptimal use of credit card balance transfer offers, misestimating the value of one's house, and excess interest rates and fee payments. The study found that middle-aged adults make fewer financial mistakes than younger and older adults.

According to the study, our ability to make sound financial decisions increases sharply in our 20s and 30s, levels off and peaks in our 50s, then begins to fall sharply in our 70s and 80s - the so called "inverted U". The learning curve associated with gaining financial knowledge is believed to be the reason for the rise in our early years, while declining cognitive function is believed to be the reason for the drop in our later years.

Our cognitive abilities, including attention span, working memory and the ability to quickly process and integrate multiple sources of information, are all very important when making complex financial decisions. And according to the study, about half of the population between ages 80 and 89 either has dementia or a diagnosis of "cognitive impairment without dementia". The combination of declining cognitive function, years of making financial decisions, and a desire to focus on positive life experiences have resulted in a few interesting behavioral traits commonly found in older investors.

The Neuroscience Behind It All
Scientific studies like the one published in the Nature Neuroscience Journal titled "Anticipation of Monetary Gain but not Loss in Healthy Older Adults" have shown that older adults exhibit a reduced responsiveness to anticipated financial loss relative to younger adults. A portion of this subdued responsiveness may be attributed to years of experiencing the ups and downs of investing and the desire to focus on positive life experiences and not necessarily declining cognitive function. This could increase an older investor's willingness to take risk and argues against the "conservative" stereotype that most people have regarding older adults.

Other research has shown that older adults prefer not to make complex decisions themselves and that their problem-solving strategies are usually more avoidant than younger adults. This means that an older adult may be more likely to put off making important "emotionally- laden" financial decisions like estate planning, selling a concentrated investment holding or firing an inept financial advisor who also happens to be a "friend". In addition, they may be more open to seeking out professional financial advice than younger adults.

Research has also shown that, perhaps due to declines in things like cognitive control, older adults exhibit a greater familiarity bias than younger adults. Such a behavioral bias could give older adults a false sense of security when dealing with things that seem familiar. It can lead them to concentrate their investment holdings in familiar companies or assets classes, which can create a poorly diversified investment portfolio. This bias could also make them more prone to financial scams that use repetition to hook victims, like mail order fraud or the ever persistent penny stock pushing telemarketer.

The reality is that aging is inevitable. But, like most things relating to age, there are simple steps you can take to help minimize, and possibly improve, the impact aging could have on your finances.

Maintain Your Cognitive Function
The silver lining is that as you age you become wiser and declining cognitive function, not age, is what eventually robs you of your financial decision making abilities. So what can you do to maintain, or perhaps even improve, your cognitive function? According to Dr. Jeffrey Toth, a psychology professor at the University of North Carolina at Wilmington and co-author of the study "Fluency, Familiarity, Aging, and the Illusion of Truth", there are a number of ways to maintain and possibly improve your cognitive function.

"Physical exercise, mental stimulation, diet, and social interaction can all help maintain your cognitive abilities," says Dr. Toth, "and of these four, physical exercise, especially aerobic exercise, appears to be the most important, with mental stimulation a close second, especially if that stimulation is truly novel and challenging."

In addition to the positive factors listed above, Dr. Toth suggests that the avoidance of negative factors is also critical in maintaining cognitive skills. Thus, he says that "smoking, heavy drinking, a high-fat diet, and lack of sleep have all been shown to accelerate cognitive decline and thus should be done in moderation, if at all."

These suggestions have lifestyle implications for an aging "do it yourself" investor, accountant, investment advisor, banker, or anyone who wants to stay on top of their financial game well into their later years. Please keep your mind sharp for younger generations. They will need your wisdom.

Start Planning Early and Stay Organized
Start seeking out a trusted financial advisor when you are middle-aged. Make sure that the advisor will be in the business, or has a competent successor that will be in the business, when you are in your later years. Start the process of talking with family members about appointing an estate executor, keep your will updated, develop a system to keep up with your tax documents, and make plans for dividing up family heirlooms early before the negative effects of aging have a chance to set in. Precautions that will help you avoid unwanted financial solicitations should also be considered, like adding your phone number to the National Do-Not-Call Registry.

The Bottom Line
When it comes to your financial decision making abilities, after a certain point, age could become more than just a number. The good news is that you can control what the impact of that number will be. George Burns, the famous entertainer who had a productive acting career well into his 90s, once said "You can't help getting older, but you don't have to get old." Financial education, living a healthy lifestyle, and early financial planning will help you maintain your financial wits and keep the curtains open for your greatest financial acts.

Original story - Do Financial Decisions Get Better With Age?

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/09/07/investopedia6080.DTL#ixzz0zSpmh9MG

Wishes and talking about end of life

The following information is from The Conversation Project, a blog maintained by the American Geriatrics Society and their Health in Aging health education Foundation.

Consider the facts.

There’s a big gap between what people say they want and what actually happens.

60% of people say that making sure their family is not burdened by tough decisions is “extremely important”

56% have not communicated their end-of-life wishes

Source: Survey of Californians by the California HealthCare Foundation (2012)

 

 

70% of people say they prefer to die at home

70% die in a hospital, nursing home, or long-term care facility

Source: Centers for Disease Control (2005)

 

 

80% of people say that if seriously ill, they would want to talk to their doctor about end-of-life care

7% report having had an end-of-life conversation with their doctor

Source: Survey of Californians by the California HealthCare Foundation (2012)

 

 

82% of people say it’s important to put their wishes in writing

23% have actually done it

Source: Survey of Californians by the California HealthCare Foundation (2012)

One conversation can make all the difference.

CPA DENVER Homecare vs Home Health Care ELDERLINK

HOMECARE vs HOME HEALTHCARE  ELDERLINK  http://elderlink.com/

Karen Moorehead, the President of Elderlink Home Care, Inc (303.734.0641) provided the following article describing the basic difference between Homecare vs Home Health care.  I appreciate her making the distinction in the following article:

Twenty-five  years ago, when Elderlink Home Care, Inc. first opened its Denver doors, the idea of seniors receiving care at home was still new.  Back then, when loved ones were diagnosed with illness or recovering from surgery, they were usually placed in a long-term care facility by doctors or family members.  Most people expected they would go to a nursing home or care facility if they found they were no longer able to live at home without assistance.  In-home care was new and many people were still unaware of it as an option. Elderlink was the first company in the Denver metro area created specifically to meet the non-medical homecare needs of seniors.  A lot has changed in 25 years! 

The term homecare is used to define non-medical care or custodial care, which is care that is provided by persons who are not nurses, doctors, or other licensed medical personnel; the term home health care refers to care that is provided by licensed personnel.

Study after study has shown that by far, the majority of seniors want to stay in their own homes as long as possible.  Homecare is credited with helping to reduce stress and increase life expectancy.  Living at home creates a sense of mental and physical well-being for the elderly. Through the years, many companies have come into existence to help seniors reach their goals of living at home.  

Today there are over 20,000 companies in the United States providing homecare to seniors and that number is expected to increase. Homecare can be a cost- effective alternative to nursing homes and hospitals and can help to postpone or prevent the need for other, more expensive forms of care.  Despite the graying of the population, the percentage of elderly living in nursing homes has declined, according to recent Census data. The decline reflects the improved health of seniors and more choices for care. In 2006, about 7.4% of Americans aged 75 and older lived in nursing homes, compared with 10.2% in 1990 (USA Today).   Today, home care for seniors has a new urgency, dubbed “the senior tsunami.” A wave of retiring and aging boomers will soon flood homecare providers.  By 2020, it is estimated that 12 million older Americans will need long-term care.

The number of changes people face as they age can be overwhelming. Illness, immobility, and the possibility of leaving the comfort of one’s home can contribute to depression and anxiety. When a person is ill or in recovery, nothing can match the security and comfort of home.  Homecare provides individualized assistance that is tailored to personal needs and helps maintain independence and dignity.

Access to quality homecare is vital to the health of our seniors and our community.  In metro Denver, seniors are fortunate to have many choices for their homecare needs.  One thing is for certain, the options and services available to seniors are sure to change as much in the next 25 years as they did in the previous 25 years. 

For more information on how homecare can help you or a loved one, call Karen Moorehead, President of Elderlink Home Care, Inc., 303-734-0641

Needing a CPA to assist in Caregiving

Brenda Avadian, noted author (you can retrieve some of her work through Ezines.com) made the following comment in her Blog post on the stages of Caregiving. The stage of hands on the wheel there is no one else should include ...Along the caregiving journey, you may need an elder law attorney to help you set up an estate plan and a durable power of attorney for healthcare, and an accountant or a tax advisor to help you manage your loved one’s finances.  You know the accountant to call or email by reading this blog. Also remember CPAs are governed by a code of professional conduct. 


Brenda Avadian, MA, an award-winning speaker, serves as a national spokesperson for family and professional caregivers and is an internationally acclaimed author.
Brenda advocates making use of the caregiving continuum, including support groups, geriatric assessment, educational sessions, in-home care, adult day care, elder law services, clinical studies, and residential, assisted living, or nursing care.