Older U.S. investors may engage in more risky financial behaviors as they continue to age and face diminished financial knowledge, according to new research from the Financial Industry Regulatory Authority Investor Education Foundation, in collaboration with researchers from Duke University and Rush University Medical Center.
The study, ‘Does Overconfidence Increase Financial Risk Taking in Older Age?,” suggests that, among senior investors, overconfidence in one’s financial knowledge may contribute to risky financial behavior, FINRA said Thursday in announcing the research findings.
“Aligning older investors’ actual financial literacy levels with their confidence in their financial knowledge may help protect them from overly risky investments,” FINRA suggested.
However, the findings, released in recognition of September as Healthy Aging Month, also indicated that although adults who were more overconfident reported being more willing to take financial risks, those individuals were not more susceptible to scams or more likely to be victimized by fraud.
Participants in the study reported their level of financial risk tolerance when managing their own money, as well as other measures related to financial risk tolerance, including scam susceptibility and financial fraud victimization.
Financial literacy was lowest among the oldest adults in the study, and those individuals who were the most overconfident were more likely to take financial risks, according to FINRA Foundation.
“Financial risk tolerance was lower at the oldest ages in general, but age was not very strongly related to risk tolerance,” the study said, noting “age explained only about 1 percent of the variance in financial risk tolerance whereas overconfidence explained about 6 percent of the variance in risk taking.”