Older adults tend to have a keen awareness of their financial capabilities, which, intriguingly, often improves with age—provided their cognitive health remains intact. New research from Binghamton University, State University of New York, has found that financial self-knowledge tends to become sharper over time, particularly as older individuals accumulate real-life experience managing pensions, insurance, medical costs and other age-related financial responsibilities. However, this trend does not hold for those diagnosed with Alzheimer’s disease, who often lose insight into their decision-making abilities.
The study, led by psychologist Ian McDonough, analysed data from a long-term study involving 2,800 older adults tracked over ten years. Participants were asked to rate how well they believed they could carry out various financial tasks—such as balancing a chequebook, making change, or paying bills—before being tested on these abilities through multiple scenarios. Participants were given a pamphlet advertising gym memberships in one task and asked to calculate the total cost over a decade. The contrast between participants’ self-assessments and their actual performance revealed how well people judge their financial competence.
Results showed that many older adults, especially those in their 60s and 70s who retained good cognitive function, could accurately predict their financial performance. Knowing how well one performs, this metacognitive ability improves with age. “It does seem people get better with time,” McDonough noted. “By the time you get to your 70s, as long as you maintain your cognition decently well, you can predict your financial ability slightly better.” This suggests that life experience is valuable in sharpening one’s financial judgement, particularly after retirement when individuals frequently engage with complex systems like Social Security and healthcare benefits.
However, this growing self-awareness can erode rapidly in those with dementia, particularly Alzheimer’s disease. The study found that individuals with such diagnoses often demonstrate a disconnection between perceived and actual financial ability. They may believe themselves still competent despite clear evidence to the contrary, or they may underestimate their capacity in ways that hinder independence. This disconnect is linked to anosognosia—a condition in which a person is unaware of their cognitive deficits. While anosognosia has been studied regarding memory, this research is among the first to explore its effects on financial self-assessment.
Such findings raise serious concerns about financial vulnerability in individuals with cognitive decline. McDonough emphasises the importance of implementing safeguards early—before awareness diminishes. By involving trusted family members and setting up systems to monitor or co-manage accounts, older adults can maintain independence while protecting against fraud, late payments, or risky decisions. “Because of the personal importance of one’s autonomy in managing finances, working with an older adult with cognitive decline rather than taking away this autonomy is an important but tricky balance to strike,” he explained.
Looking forward, McDonough and his colleagues plan to examine the neural mechanisms underlying financial decision-making by observing brain activity during mathematical tasks. They also explore how digital banking literacy influences financial management in older populations. As the banking landscape becomes increasingly digital, understanding how seniors engage with online systems will be crucial for developing effective interventions. This research sheds light on older adults’ strengths and vulnerabilities. It offers a compelling case for proactive planning and education to preserve financial well-being in the face of cognitive decline.
More information: Ian McDonough et al, Relationship Between Perceived and Objective Financial Abilities Among Older Adults: Results From the Advanced Cognitive Training for Independent and Vital Elderly Cohort, The Gerontologist. DOI: 10.1093/geront/gnaf125
Journal information: The Gerontologist Provided by Binghamton University
