Older adults are often thought to possess a heightened understanding of their financial abilities—an intuitive grasp that, perhaps surprisingly, tends to sharpen with age, so long as their cognitive faculties remain intact. New research from Binghamton University, part of the State University of New York system, confirms this intuition: financial self-awareness in older adults improves over time, bolstered by decades of hands-on experience navigating pensions, insurance plans, healthcare costs, and other fiscal responsibilities associated with later life. However, this gradual refinement of self-knowledge fails to manifest in individuals diagnosed with Alzheimer’s disease, who frequently lose the capacity to assess their decision-making abilities accurately.

The study, conducted under the direction of psychologist Dr Ian McDonough, drew on a decade’s worth of data from a longitudinal cohort of 2,800 older participants. These individuals were asked to rate their perceived competence in executing everyday financial tasks—such as balancing a chequebook, calculating change, or managing monthly bills—before undergoing practical tests designed to measure their performance. One illustrative task involved reviewing a brochure for gym memberships and determining the total cost over ten years, offering a real-world scenario that blended numeracy with financial reasoning. By comparing each participant’s self-evaluation with their performance outcomes, the researchers assessed the degree of alignment between confidence and capability—a measure of metacognitive insight.

The findings revealed a promising trend: many cognitively healthy adults in their 60s and 70s demonstrated an improving ability to gauge their financial proficiency. This growing metacognitive accuracy results from life experience, particularly post-retirement, when navigating systems such as Social Security and healthcare subsidies, which have become a regular part of daily life. As McDonough observed, “It does seem people get better with time. By the time you get to your 70s, as long as you maintain your cognition decently well, you can predict your financial ability slightly better.” These results offer reassurance that financial wisdom tends to accrue with age—provided that cognitive health remains stable.

However, this sharpening of insight begins to deteriorate rapidly when dementia enters the picture. For individuals with Alzheimer’s disease and related forms of cognitive impairment, the study uncovered a pronounced gap between perceived and actual financial ability. Some participants in this group continued to express high confidence in their decision-making skills despite clear evidence of decline. In contrast, others became unduly doubtful of their abilities, erring on caution and potentially limiting their independence. This misalignment is associated with anosognosia, a neurological condition wherein individuals lose awareness of their deficits. Although anosognosia has been well-documented regarding memory and orientation, this study represents one of the earliest efforts to explore its influence on financial self-assessment specifically.

The implications of this research are far-reaching, particularly in light of the growing number of older adults living with cognitive impairment. Financial vulnerability becomes critical when individuals cannot accurately judge their abilities. As McDonough explains, early intervention is key. Support mechanisms should be introduced while cognitive awareness remains intact, such as designating a trusted family member to co-manage financial affairs or implementing safeguards like alerts for unusual account activity. These strategies can help maintain a sense of autonomy while reducing the risk of economic exploitation, missed payments, or unwise spending. “Because of the personal importance of one’s autonomy in managing finances,” McDonough notes, “working with an older adult with cognitive decline rather than taking away this autonomy is an important but tricky balance to strike.”

Looking ahead, McDonough and his team aim to delve deeper into the neurological basis of financial judgement by examining brain activity during mathematical and decision-making tasks. Another area of focus is digital financial literacy among seniors, a pressing topic as banking increasingly relies on online platforms. Understanding how older adults interact with these digital tools will be essential in developing effective educational programmes and support structures that can adapt to their needs. With the digital landscape evolving rapidly, ensuring that older individuals are not left behind becomes a matter of financial security and broader social inclusion.

Ultimately, this research offers a nuanced view of ageing and cognitive change—highlighting the strengths many older adults retain while also pointing to the vulnerabilities that can emerge with dementia. It underscores the importance of timely planning, respectful collaboration, and targeted education in protecting financial well-being in later life. Rather than portraying ageing as an inevitable decline, the findings invite a more balanced narrative that recognises the wisdom that can come with experience, alongside the challenges that cognitive impairment may bring. By supporting older adults in retaining both their independence and their security, we honour their financial autonomy and dignity.

More information: Ian McDonough et al, Relationship Between Perceived and Objective Financial Abilities Among Older Adults: Results From the Advanced Cognitive Training for Independent and Vital Elderly Cohort, The Gerontologist. DOI: 10.1093/geront/gnaf125

Journal information: The Gerontologist Provided by Binghamton University

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