One of the more charming YouTube videos to go viral recently is an interview 32-year-old filmmaker Jeremiah McDonald held with his 12-year-old self. Back in 1992, the precocious 12-year-old recorded himself in a video asking questions of his future self.
Twenty years later, an older McDonald, at one point cringing at his younger self, quips, “No wonder I’m single.” When his younger self asks why his future self is bothered, the response is: “Because I’m the result of every decision you make.”
This month’s cover story (“The Challenge of the Aging Brain”) by Michael Finke, a rising star in the world of academic finance, addresses the serious but not well known problem of how cognitive decline impacts financial decision making. Finke cites a study from Texas Tech, where he directs the personal financial planning program, which indicates that the ability to understand and apply financial concepts peaks in the early 50s and declines by about 2% per year after age 60.
This grim reality invites questions about what kind of conversation a person (or his financial advisor) might want to imagine between his (client’s) 70-year-old and 50-year-old selves.
A serene 70-year-old will commend you for putting in place a process that reduces the stress and uncertainty of decision-making later in life. He may thank you for supplementing Social Security with annuity income; he may tell you it was not as outlandish as thought at the time to go back to school or to start a freelance business that is keeping the 70-year-old self busy and fulfilled with work. He may thank you for finding a trusted financial advisor.
A stressed 70-year-old might tell her younger self that she really didn’t need to spend as much as she did on clothes, entertainment and vacations; that just as she once weathered a 10% pay cut during the Great Recession, so too could she have reduced her expenditures when her full pay was restored in order to save consistently for retirement. She might say there were health and longevity risks that seemed improbable at the time that she wished she had insured against.
Another critical area of satisfaction or frustration would involve the 70-year-old’s relationship with his children or younger-generation relatives, friends or mentees. We live in a society that does not generally cultivate respect for elders. Many a parent fears his adolescents and popular culture portrays grown-ups as clueless and out of touch, rather than as individuals who have overcome obstacles, acquired wisdom and charted a course for the next generation.
A serene 70-year-old can praise his younger self for decisions, even if unpopular at the time, to ward off bad influences on his children. A stressed 70-year-old might question her younger self’s reluctance to let her children stand on their own two feet.
Many people give remarkably little thought to planning for their financial futures, often making enormously consequential decisions quite casually. As financial advisors, the understanding that your 70-year-old client is the result of his 50-year-old self’s decisions is nothing less than your key value proposition.