The study, entitled “Sound Credit Scores and Financial Decisions Despite Cognitive Ageing“, found evidence that “crystallised intelligence,” which is gained through experience and accumulated knowledge, can be more important than “fluid intelligence,” the ability to think logically and process new information.
“Our research shows that cognitive decline is real, but does not spell doom for making financial choices,” said Eric Johnson, professor of business at Columbia Business School. “An alternative route to making sound financial decisions comes from experience – and that improves with age.”
As such, financial teams should consider employing older workers, as well as those of a younger age, in order to boost financial decision making.
This was further highlighted by a series of economic tests, which found that an older group of 163 participants aged 60 to 82 were better than the 173 younger counterparts of 18 to 29 at temporal discounting, loss aversion, financial literacy and debt literacy. The older group exhibited greater patience and better financial and debt understanding.
They were also somewhat less afraid of losses but the result did not reach standard levels of significance.
“The research shows that despite cognitive graying, older people’s financial decision-making may be more ‘golden’ than a slowing brain might otherwise suggest,” said Ye Li, an assistant professor of management and marketing at the UC Riverside School of Business Administration.
He noted that the study has important implications as the population ages. According to Age UK, there are now more people in the UK aged 60 and above than there are under 18.
“The findings confirm our hypothesis that experience and acquired knowledge from a lifetime of decision making offset the declining ability to learn new information,” Li said. He also noted that it was a business case for employing older employees.
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