کاهش شناخت و تصمیمات مالی خانوار در سنین بالاتر Cognitive decline and household financial decisions at older ages

1. Introduction Several global trends contribute to make financial planning at older ages increasingly challenging. Life expectancy is rising and, with it, the need for large savings to finance consumption over a longer horizon and guard against medical expenses. The progressive shift from definedbenefit to defined-contribution pensions has put more investment responsibility onto households. Recent developments in the public and private health insurance landscapes have made the task of selecting the “right” plan more daunting for seniors. In this scenario, cognitive decline that come with age may present a significant threat to older adults’ economic wellbeing. In this paper, we study the extent to which financial responsibility within the household is related to the relative cognitive ability of its members and examine the financial consequences of cognitive aging. Recent contributions in the economics literature indicate that cognitive measures contribute to explain heterogeneity in retirement wealth and asset holdings across individuals. Better cognitive skills correlate strongly with lifetime savings (Smith et al., 2010), stock market participation (Christelis et al., 2010) and portfolio diversification (Korniotis and Kumar, 2011). Agarwal and Mazumder (2013) observe that consumers with higher cognitive scores, especially math test scores, are significantly less prone to mistakes when using their credit cards or applying for a home equity loan. Agarwal et al. (2009) analyze life-cycle patterns in financial mistakes using a credit card transaction database and document that financial mistakes follow a U-shape pattern over the life course, with inexperience and cognitive decline being associated with poorer decisions at younger and older ages, respectively. This is consistent with the finding of Samanez-Larkin (2013) that risky financial mistakes at older ages are linked to broader network disruption in the brain which underlies losses in fluid cognitive ability. Hsu and Willis (2013) analyze the impact of information about cognitive decline on the choice of who is the household financial decisionmaker. They find that a new diagnosis of a memory-related disease significantly increases the odds that the management of finances is turned over to a cognitively intact spouse. Notably, this often happens well after difficulties handling money have already emerged. Building on this literature, we revisit the association of an individual’s cognitive ability with his/her status of household financial decision-maker and examine the extent to which cognitive declines lead to shifts in financial responsibility between couple members. Neurological studies show that dealing with simple math problems and handling financial matters are among the first skills to be affected by cognitive decline and mild cognitive impairment.