Aging and Financial Decision Making

Abstract

In the first half of the chapter, we review research on financial decision making and age-related differences in cognitive abilities, experience-based knowledge, emotional processes, and motivation. We discuss findings showing that age-related declines in cognitive abilities may yield suboptimal decisions, especially when decisions are complex or decision makers lack motivation to deploy cognitive resources. We highlight research showing that experience and training in financial principles can attenuate challenges posed by age-related cognitive declines. We then summarize research showing that age-related shifts in motivation and improvements in emotion regulation have consequences for financial decision making. We discuss advantages and disadvantages of positive emotions on older adults’ decision making. In the second half of the chapter, we draw from the literature on aging and financial decision making to consider developmentally appropriate interventions to promote sound financial decision making. We note that “nudges” that capitalize on habitual thinking styles might benefit from considering older adults’ limited future time perspective and habitual orientation towards the present. We discuss ways to increase older adults’ willingness to use decision aids, for example, by highlighting the emotional relevance of information and reducing demands on numerical skills. We note that providing training in financial principles early in life may help to delay the onset of negative consequences of cognitive declines on financial decisions by promoting experience. We conclude by discussing limitations of current knowledge and recommending topics for further research.