Benefits of IRA Education - Cognitive Aging and Financial Literacy

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In a brief released this month at by the Center for Retirement Research at Boston College, researchers found there may be challenges for aging investors to manage their own money proficiently as they experience cognitive aging. The evidence showed that older retirees who crystalized their financial literacy before the onset of normal cognitive aging (in their 70’s and 80’s) were likely to not have any deterioration in their ability to manage their personal finances. However, investors who are financial novices in their 70’s and 80’s were more likely to encounter challenges when taking on new financial tasks, such as inheriting a spouse’s estate or paying bills on time.

Researchers define financial proficiency as the ability for investors to carry out procedures such as paying bills and exercising judgment (as in, assessing an investment’s potential return relative to its risk). The research found that most retirees in their 70’s and 80’s are just as able to pay the bills, handle debt, and maintain good credit as workers in their 50's and 60's. Evidence suggests that “accumulated knowledge” which retirees have in their 70’s and 80’s allows investors to handle money effectively, despite cognitive aging.

On the flip side, investors who are novice in their investor education by the time they reach 70 are at higher risk of having difficulties managing household finances. These investors are more likely to need help with many aspects of financial management, such as paying bills on time or updating a will. The challenge of lack of knowledge is compounded by normal cognitive aging, which diminishes investor’s abilities to process and apply new information. As the article states, “if people in these situations lack the support they need, they could make mistakes, with consequences ranging in severity from lower credit scores to prematurely running out of money.”

The take-away for our investors? Older retirees with financial literacy that has been “crystalized” over decades of education are more likely to be able to proficiently manage their home finances.  Investors can benefit by educating themselves thoroughly about strategically managing their IRAs before they reach the age where cognitive aging presents challenges. Choose an IRA provider who prioritizes education to strengthen their clients’ abilities to maintain financial success.

New Direction IRA hosts a myriad of educational materials for all current and future clients. Investors can choose from our wide selection of investing guides, detailed webinars, and timely blog entries and press releases. Feel free to call New Direction IRA today to speak with an IRA expert about any of your questions or concerns.

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