The age of diminishing reason
Can you answer the question?
The steep drop-off at older ages is striking. Little wonder considering about half the population in their 80s suffers “from significant cognitive impairment, effectively rendering them incapable of making important financial choices,” according to David Laibson, economist at Harvard University.
In The Age of Reason — a series of slides — Laibson makes a powerful case for estate planning at age 65. The target audience for his talk was financial advisors, but the same insights hold for families. An aging population needs to get its financial affairs in order while still mentally spry. “Estate planning is not just tax planning or bequest planning,” Liabson says. “Planning for cognitive decline is just as important.”
I would substitute family for client.
In an earlier study, Laibson, along with three other scholars (Sumit Agarwal, John C. Driscoll, and Xavier Gabaix), looked into the link between age and the quality of financial decision-making in debt markets. They found that financial experience rises with age — with a peak around age 53 — and then analytical abilities start declining as we get older.
The financial stakes? The population 65 and older has a net worth of about $18 trillion.
The questions he raises aren’t simply about sound estate planning. The bigger issues include protecting the elderly from scamsters, helping older folks make sound financial decisions, providing greater regulatory protections, and developing simple financial products that meet everyday financial needs of older people. It’s an evolving area for families, the law, and federal and state regulators. The current safety net is thin and frayed.
(Thanks to Alex Tabarrok of Marginal Revolution for the link.)
As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.
Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.
Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.