5 New Things Finance Professors Are Saying About Your Prospects

Bright people and financially literate people may be equally likely to seek you out, or avoid you, but for different reasons.

An increase in either cognitive ability or financial literacy appears to increase the odds that older people will seek out financial management help from someone other than their relatives, a team of three finance researchers reports in a new working paper posted on the website of the National Bureau of Economic Research (NBER).

An increase in cognitive ability appears to increase the odds that older people will be too skeptical to trust sources of financial advice identified as “financial advisors,” but financial literacy by itself may have somewhat less effect older people’s level of skepticism, the researchers found.

(Related: How Much Cash Would It Take to Get People to Delay Retirement?)

Hugh Hoikwang Kim, a faculty member at the University of South Carolina business school, wrote the working paper, or academic paper draft, together  with Olivia Mitchell and Raimond Maurer.

The new article does not mention annuities specifically, in the text, but Mitchell has published many widely read papers on annuities over the years, and one of the papers cited in the source list is about the annuity market.

The Kim team that wrote the new paper used data, drawn from the 2016 Health and Retirement Study (HRS), on how 1,180 U.S. residents ages 50 and older have been handling their finances, and what they think about financial advice. The HRS team let the Kim develop its own survey questionnaire module.

The Kim team then analyzed the results from their module alongside cognitive ability and financial literacy scores from the main HRS survey.

Here’s a look at five things to know about the survey results.

1. Only 34% of the respondents said they had received financial advice.

About 76% of all of the participants said they had received money help from outside their networks of friends and relatives, and about half said they had received advice other than investment advice.

2. About 14% said they had received free advice.

If you work on a commission, you may see that as a good way to help people get access to financial advice and financial products without them having to pay additional fees out of their own pockets.

The researchers classified indications that participants had received free advice as a problem.

Free advice “of course is likely to be not truly free, rather to embed feeds in products involving potential conflicts of interest,” the researchers write.