NewsFinancial wisdom peaks in the early 50s, says new research

Financial wisdom peaks in the early 50s, says new research

Upon reaching the age of 50, we enter the so-called age of reason, scientists claim. The photograph is for illustrative purposes.
Upon reaching the age of 50, we enter the so-called age of reason, scientists claim. The photograph is for illustrative purposes.
Images source: © Getty Images | Cecilie_Arcurs

20 June 2024 16:11

Are you curious if there's a "magical" age when our financial management skills are at their peak and our financial decisions are particularly accurate? Scientists claim that such an age does indeed exist. Research on this topic was published by The Wall Street Journal.

Effective financial management relies on several key elements. Knowledge and experience in budgeting, saving, and investing, combined with analytical thinking skills, are essential for making good financial decisions. Research has shown that we handle finances best at the age of 53-54, according to "The Wall Street Journal."

Experts indicate that after the age of fifty, we gain enough experience to accurately navigate financial matters and use this knowledge to make prudent decisions. This period in life is often called the "age of reason."

Rafal Chomik, an economist at the Australian research centre ARC Centre of Excellence in Population Ageing Research, explains as we age, we increasingly rely on past experiences, proven principles, and intuitive knowledge about which financial products or strategies are more advantageous.

According to "WSJ," Chomik's research focused on the ability to understand financial concepts and their application in managing personal capital. The analysis results show that we make the best financial decisions around the age of 54 when our financial competencies peak, and then they gradually decline.

The study assessed financial knowledge through questions about inflation, interest rates, and diversification – as read on the "WSJ" website. One of the questions was: "If in five years your income doubles and prices double, will you be able to buy (A) less, (B) the same, (C) more than now?" – read one of the questions.

"Age of reason" after fifty and "fluid intelligence" of 20-year-olds

Researchers' findings do not mean individuals aged 20, 40, or 60-70 cannot make sound financial decisions. Each age group has its advantages and certain limitations in the context of money management.

According to "WSJ," people in their 20s are better at absorbing and processing new information and numerical calculations – that's so-called fluid intelligence. However, they lack the rich life experience and crystallized intelligence – accumulation of facts and knowledge – that develops with age.

Kristen Jacks, a 55-year-old financial educator, claims that people over fifty often have enough experience to be aware of the need to consider all alternatives and avoid financial mistakes carefully.

Experience with spending and saving, along with later life stages, leads to well-thought-out financial decisions. As Jacks says, "You're also at the age when you look at your retirement savings and realize you're running out of years to make it bigger."

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