There’s a fine line between confidence and overconfidence, and when it comes to financial matters, crossing into the overconfident territory could yield disastrous results.
New findings from a group of researchers with the TIAA Institute discovered that older adults who scored higher on cognitive tests are also more self-confident about managing finances and therefore less likely to seek advice.
The Institute’s report highlights concerns about one’s ability to manage finances as he or she ages and cognitive ability declines. “[I]f they mistakenly believed that their acumen remains intact at older ages, they would continue managing their assets, rather than seeking help from financial advisors,” the researchers noted.
Results were similar, if not worse, among respondents with better cognitive ability and financial literacy. Data show this group is “not more likely to access financial advice regarding a variety of financial tasks, obtain free help or follow advice when given,” according to TIAA’s report.
Perhaps the least susceptible to making poor financial choices are those with higher levels of financial literacy. But their money skills aren’t the only reason that this is the case. Strangely, those who are more financially savvy are also more likely to seek help related to money matters and less likely to be overconfident.
Focusing on adults ages 50 and over, TIAA examined data from the nationally representative Health and Retirement Study to draw its conclusions. Other key findings published in the Institute’s “Cognitive Ability and the Demand for Financial Advice at Older Ages” report include:
- People scoring higher on cognitive questions by one standard deviation are 52 percent more likely to avoid advice due to self-confidence. Interestingly, they are also 50 percent less likely to know whom to ask for help.
- People scoring higher on financial literacy questions by one standard deviation are 13 percent more likely to spend time managing finances; 10 percent more likely to get help with money management; 29 percent less likely to avoid asking for help due to self-confidence; and 21 percent less likely to not know whom to ask for help.
- Among all adults 50 and up, half admit to devoting time to managing their finances within the last year. Two in five completed tasks more challenging than simply managing a checking account. A little over one-third sought help with financial tasks, with over half seeking investment advice.
- Of respondents who did get advice, 71 percent consulted a professional advisor and 76 percent received advice from either an advisor or nonfamily member. Regrettably, 14 percent of respondents admit to receiving advice from a free source with potential conflicts of interest.