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Do Old People Make Bad Financial Decisions?

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By Jack Cumming

On April 1, the USC Leonard Davis School of Gerontology held its tenth annual program with the title “What’s Hot in Aging Research at USC?” The subtitle was “Breaking Down the Myths and Stereotypes of Aging.” The entire day was thought-provoking and enlightening.

Of particular interest was research by Professor Duke Han, which he presented with the caption, “Dispelling Myths about Cognition and Financial Decision Making in Old Age.” We all know that financial deception of the elderly seems to be on the rise with the increase in robocalls. The grandchild in jail ploy seems to be particularly common; although, we shouldn’t count the Nigerians out yet.

Even Cogent Old People Can Make Bad Decisions

What was intriguing was that Professor Han discounted the presumed correlation between poor financial decision making and poor cognition. Instead, he and his colleagues discovered that other elements, including emotional factors and changing views of risk aversion, were more determinative. Personally, I found this fascinating, though I don’t, myself, think that we should rule diminished cognition out altogether.

I suppose we might speculate that the very old don’t expect to live much longer and so they have a greater appetite for financial risk. Or, we might think that some elderly want to have a last hurrah and so are prey for plausible confidence approaches. With the grandchild scam, an elderly person may conclude that it’s better to be safe than sorry, so they accede to the solicitation. In short, it’s easy to turn first to cognitive loss as a plausible cause, so Professor Han’s refutation of that linkage opens intriguing other avenues for speculation and inquiry.

Does Slowing Thought Play a Role?

I should quickly add that none of these explanations were mentioned by Professor Han. He did note that reasoning and decision making, i.e., weighing alternatives and reaching a well-reasoned choice among them, does slow in the elderly. For those who want to delve into this in greater depth, the slides for an earlier presentation by Professor Han can be accessed by clicking on this sentence.

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