Research links financial knowledge to confidence and mental acuity

By James Langton | September 22, 2020 | Last updated on September 22, 2020
2 min read
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New research suggests that confidence in financial knowledge among seniors is associated with the risk of cognitive decline and the onset of dementia.

The investor education arm of the U.S. Financial Industry Regulatory Authority Inc. (FINRA) released a pair of studies examining the links between financial knowledge, confidence, cognitive health and decision-making.

The FINRA Investor Education Foundation said that the findings demonstrate “the importance of maintaining financial and health literacy as people age.”

One study, which was produced in collaboration with researchers from Rush University Medical Center, found that confidence in financial knowledge is associated with a decreased risk of Alzheimer’s dementia. The study found that seniors who are underconfident are at greater risk of developing Alzheimer’s and experience faster cognitive decline.

The study did not find a similar association between cognitive decline and confidence in general, it reported.

“While it is not completely clear why this relationship exists, it could be that confident people are more motivated to engage with the world and actively seek to acquire new information,” said Gerri Walsh, president of the FINRA Foundation.

“This research does suggest that education and outreach programs aimed at increasing financial and health literacy are important to preserve cognitive health among older adults. And targeting soft psychological factors, such as confidence, could benefit cognitive health and well-being,” she added.

A second study found that, over time, a majority “showed an overall decline in financial and health literacy.” This study, which also involved Rush University researchers, tracked responses from annual literacy assessments over a 10-year period.

The study also found that faster declines in literacy were associated with poorer decision making, a higher susceptibility to scams and lower psychological well-being.

“Declining financial and health literacy may represent a novel harbinger of adverse outcomes, and regular monitoring of financial and health literacy could serve as a useful tool to identify individuals at risk of impending degradations in their decision-making ability,” said Walsh.

“These findings suggest that efforts to mitigate declining financial and health literacy may promote independence and well-being in old age,” she said.

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.