How Aging Can Impact How You Make Financial Decisions

The burgeoning field of neuroeconomics studies how the brain processes financial information. One of the clearest findings is that as you age, your ability to learn from experience and adjust your beliefs accordingly becomes more difficult.

Aging tends to harden some of your belief structures and updating these beliefs becomes more challenging. As an investor you are always face to face with uncertain outcomes. While your life experiences are the raw material for how you make investment choices, there are other equally important components.

Investing is a dynamic activity and requires some ability to learn from feedback. Specifically, you need to be able to monitor your outcomes to determine if changes are warranted.

Neuroeconomists believe that the neural communication systems in aging brains become less able to separate meaningless noise from important signals.

Why Risk Perception Changes With Age

Some older investors exhibit an excessively conservative approach to their money choices. A closer look, however, often shows that older investors have more difficulty comprehending risk, which manifests itself as being too conservative in financial matters.

Dr. Camella Kuhnen believes this can be traced to difficulty with properly tracking investment results. She says, “Signals that once clearly distinguished good from bad investments become harder to interpret.”

Warning Signs That Your Financial Strategy May Need Updating

So where does that leave you and what can be done? If you find yourself strongly resisting making changes to your finances despite changing personal goals, that might provide a hint. Simply being aware that your financial inputs need to align with your aspirations is a step forward.

If you find that you are leaning too heavily on old financial rules of thumb or relying only on direct experiences, that may be yet another clue.

Financial Planning for Older Adults

As you age it becomes harder to recognize shifts in broad financial strategies and technologies that may be different from what you have previously experienced. Once again, personal experience doesn’t necessarily help you here and may keep you moored in the past.

It’s important to note that many older investors actually outperform those who are younger in some respects. As you age, you may find that you have more control of your emotions than when you were younger. Emotions and the erratic investing behaviors that ensue can cause trouble for your long-term financial goals.

As you age it’s important to be aware of how much information you can reasonably digest at one time. Neuroeconomists call this cognitive load and in general lower cognitive loads can help you make higher quality financial decisions.

You may find that simplifying the various pieces of the financial puzzle will help you make better decisions. Just as you would with all types of complex choices, seek clarity and perspective before you make important decisions. Start there. Ready for a real conversation?

Disclosure

Apollon Wealth Management, LLC dba J.E. Wilson (Apollon) is an investment advisor registered with the SEC. This document is intended for the exclusive use of clients or prospective clients of Apollon. Any dissemination or distribution is strictly prohibited. Information provided in this document is for informational and/or educational purposes only and is not, in any way, to be considered investment advice nor a recommendation of any investment product or service. Investing involves risk, and while remaining invested can support long-term goals, it does not guarantee a profit or protect against losses. Advice may only be provided after entering into an engagement agreement and providing Apollon with all requested background and account information. Please visit our website https://apollonwealthmanagement.com for other important disclosures.