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24 November, 2022

Financial decision making for and in old age – CEPAR – October 2022

A new research report, Financial Decision Making for and in Old Age, published by the Center of Excellence in Population Ageing Research (CEPAR), focuses on decisions related to personal retirement finances and explores how the risks of poor decisions increase with age. The report provides information from more than 40 CEPAR researchers on how these risks can be mitigated and how cognitive health can be boosted for decision-making in old age.

Rafal Chomik, lead author of CEPAR’s report and senior researcher at the UNSW Business School, says financial errors are more likely and meaningful when aging, complexity, and large sums of money are combined.

“Some of the most important financial decisions need to be made at a time when cognitive ability is at greater risk of deterioration,” he says.

“The report shows that financial education decreases at more advanced ages. However, confidence in one’s financial capabilities continues to increase during retirement,” says Rafal Chomik.

The report also notes that the risks of poor decisions due to cognitive impairment can be reduced by making contingency plans, for example by simplifying finances, previously blocking financial products and through advanced care planning; and financial decisions can also be dynamically delegated to family members and/or advisors with appropriate security mechanisms to prevent fraud and financial exploitation.

The behavioral finance research presented in the report shows that decisions can be simplified and guided by the following measures:

(1) reduce the number of options, for example by offering fewer but higher quality products;

(2) simplifying supporting information, for example by designing product disclosures that inform rather than confuse;

(3) adding nudge information, e.g., anchor suggestions;

(4) opportunity for the provision of financial information and education;

(5) train for decision making; and

(6) as an alternative to free choice, providing advantageous predetermined decisions, or by outsourcing or exchanging decisions with advisors or technology.

To review the entire study, click here.

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