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Aging, Cognitive Ability and Financial Literacy

Paper Session

Friday, Jan. 4, 2019 10:15 AM - 12:15 PM

Atlanta Marriott Marquis, A705
Hosted By: American Economic Association
  • Chair: Annamaria Lusardi, George Washington University

FINANCIAL FRAUD AMONG OLDER AMERICANS: EVIDENCE AND IMPLICATIONS

Marguerite DeLiema
,
Stanford Center on Longevity
Martha Deevy
,
Standford Center on Longevity
Annamaria Lusardi
,
George Washington University
Olivia S. Mitchell
,
University of Pennsylvania

Abstract

The consequences of poor financial capability at older ages are serious and include making mistakes with credit, spending retirement assets too quickly, and being defrauded by financial predators. Because older persons are at or past the peak of their wealth accumulation, they are often the targets of fraud. Our project analyzes a module we developed and fielded in the 2016 Health and Retirement Study (HRS). Using this dataset, we evaluate the incidence and risk
factors for investment fraud,prize/lottery scams, and account misuse, using regression analysis. Relatively few HRS respondents mentioned any single form of fraud over the prior five years, but
nearly 5% reported at least one form of investment fraud, 4% recounted prize/lottery fraud, and 30% indicated that others had used/attempted to use their accounts without permission. There
were few risk factors consistently associated with such victimization in the older population. Fraud is a complex phenomenon and no single factor uniquely predicts victimization. The
incidence of fraud could be reduced by educating consumers about various types of fraud and by increasing awareness among financial service professionals.

Voting in the Aftermath of a Pension Reform: The Role of Financial Literacy

Elsa Fornero
,
University of Turin
Anna Lo Prete
,
University of Turin

Abstract

This paper documents that the electoral cost of major pension reforms is lower in countries where the level of financial literacy is higher. The evidence from data on legislative elections held between 1990 and 2010 in 21 advanced countries is robust when we account for macroeconomic, demographic, and political conditions. Interestingly, the results are not robust when we consider less specific indicators of education, such as school attainment. These findings suggest that the knowledge of basic economic and financial concepts has distinctive features and may help government re-election in the aftermath of reforms that have a relevant economic content and a significant impact on the life cycle of individuals

Self-Assessed Cognitive Abilities and Financial Wealth: Are People Aware of Their Cognitive Decline?

Fabrizio Mazzonna
,
University of Lugano
Franco Peracchi
,
Georgetown University

Abstract

Using longitudinal data from the Health and Retirement Survey, we study the relationship between self-ratings of memory ability and assessed memory performances (i.e., the score in the word recall test) and show that older people tend to largely underestimate their own cognitive decline. We also analyze the financial consequences of this underestimation focusing on individuals who experienced a significant cognitive decline across waves (as measured by the change in their test score). We show that respondents unaware of their cognitive decline are more likely to experience a significant financial loss compared to respondents who are aware of the fact that their memory performance are declining, and, more generally, compared to all other respondents who did not experienced a similar decline in their memory performance. The wealth loss for respondents who are not aware of their declining memory performance is mainly driven by a decrease in their financial wealth, and in particular in the value of their financial assets.
Discussant(s)
Luigi Guiso
,
Einaudi Institute for Economics and Finance (EIEF)
Sumit Agarwal
,
Georgetown University
Annamaria Lusardi
,
George Washington University
JEL Classifications
  • D1 - Household Behavior and Family Economics
  • J1 - Demographic Economics