The sophistication of financial decisions varies with age: middle-aged adults borrow at lower interest rates and pay fewer fees compared to both younger and older adults. We document this pattern in ten financial markets. The measured effects can not be explained by observed risk characteristics. The sophistication of financial choices peaks at about age 53 in our cross-sectional data. Our results are consistent with the hypothesis that financial sophistication rises and then falls with age, although the patterns that we observe represent a mix of age effects and cohort effects.
Here is the paper.
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Does fiscal responsibility drop off with age, or do the more meticulous, stress prone people drop off with age?
Maybe the dumb and happy have better survivorship.
Does this mean we should select financial professionals under the age of 53???? How about estate planners and trust attorneys over 53? Never trust anyone over the age of 53? An example of research that creates more questions than it answers. But then, isn’t that what good research is supposed to do? Create job security for researchers?
Perhaps middle-aged adults seem more financially saavy (i.e. “borrower at lower interest rates and pay fewer fees”) because younger borrowers don’t have the same opportunities to do the same. I bought my first car at a price of $8,000, put $5k down, and couldn’t get a rate lower than 21.5% to finance the rest. This was due in no small part to the fact that I had never borrowed a nickel (in the form of credit) before in my life.
No credit is worse than bad credit: younger borrowers are penalized as a result and, at least according to this analysis, end up appearing less financially sophisticated.
sonik: I went through the same thing. (Though with a home loan, that I turned down, instead of a car.) Bad
credit is a lot worse than no credit. Then when you explain what happened to the credit industry’s avid
defenders, they instantly assume you must have “had trouble handling large debt” in the past. Whatever.
I personally think that as you are younger there are debts to pay off from school, and starting families of your own. As you get older you want to refurbish the old or get new things. Middle age is where I think most people are content and supply meets demand. They make smarter choices about loans and needs. They do not let the want demand increase so the supply goes down.
People at the middle age are more wiser and realistic which leads to
realistic thinking in terms of finance.
I feel the smarter choice about finances is analysed in the middle age only.
supplies are taken care not to exceed the demands.
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