It’s been a long-held belief that as a person ages, his or her decision-making ability declines. Therefore, selling complex financial products like annuities to a senior is a risky endeavor.
However, a new study by the MetLife Mature Market Institute and the Center for BrainHealth at the University of Texas at Dallas asserts that age alone is not a determining factor in whether an elder can make a sound financial decision.
Researchers interviewed 72 men and women in their 50s, 60s and 70s for the study, “Healthy Brain, Healthy Decisions: The MetLife Study of Decision-Making Potential.” Countering conventional wisdom that as one gets older cognitive functions decline, investigators found that healthy older adults were still able to make good decisions about their finances. Rather than age being a curb on mental capacity, the study found that more life experience and accumulated knowledge actually enhanced decision-making and reasoning ability.
If a senior’s cognitive abilities do deteriorate, it is more likely due to an underlying, individual disorder, such as early dementia or other medical condition.
“Rather than attributing impaired decision-making to age alone, approaches that assess an individual’s strategic learning ability and cognitive function can improve our understanding of decision-making capacity at all ages and between genders,” said Sandra Timmermann, Ed.D., director of the MetLife Mature Market Institute, in a statement.
Sandra Chapman, Ph.D., founder and chief director of the Center for BrainHealth at The University of Texas at Dallas, said that focusing exclusively on age may limit a senior’s ability to make life choices.
“Policies and practices that focus exclusively on age-related declines in decision-making will unnecessarily curtail the autonomy of older adults with preserved cognitive function,” she noted in a statement.
Researchers assessed participants’ financial conscientiousness, such as being careful and organized, by using a series of questions about monthly budgeting and financial retirement plans. Those who demonstrated smart decision-making also excelled at strategic learning, or the ability to discern more important information from the less important.
While participants in all three age groups showed about the same strategic learning abilities, the oldest participants slightly surpassed the rest, implying strategic learning capacity may actually increase with age in normally functioning adults, the study concluded.
Other findings included:
- Older study participants (those in their 70s) were more conscientious, remained vigilant (i.e., considered their options before making a decision) and avoided being hyper-vigilant (i.e., focused on immediate solutions without considering other outcomes) when compared to the younger group (those in their 50s).
- Older decision-makers were as logically consistent as younger decision-makers. Increased age alone–from the early 50s through the late 70s–was not a key factor in predicting impaired decision-making capacity.
- Strategic learners are less likely to fall victim to bias toward riskier options. Participants who performed well in filtering important information on the strategic learning measure made more logically consistent financial decisions. Those who performed poorly on strategic learning were less logically consistent and showed more bias toward riskier choices resulting in potential financial gain or loss.
- Risk tolerance can be linked to cognitive ability. Overall, men and women performed equally at logically consistent decision-making and at strategic learning. In both men and women, strategic learning proficiency was associated with the ability to make logically consistent (risk averse) decisions.
- There were, however, differences between men and women in the relationship between decision-making and traditional measures of cognitive function. Men with average cognitive function demonstrated the highest risk-seeking (lowest logical consistency) in decision-making of any group. Men in the superior cognitive range were the most conservative followed by women in the average cognitive range. Decision-making and what impacts risk-aversion and risk-seeking are important because women become the lead decision-makers later in life due to loss of spouses and longer life spans.