Research Finds Smartest Financial Decisions Are Made in Middle Age

NEW YORK--()--As the saying goes, one becomes older and wiser. How true is that when making financial decisions? Analyzing 10 different types of credit behavior, NYU Stern Professor Xavier Gabaix, with colleagues Sumit Agarwal at the Federal Reserve Bank of Chicago, John Driscoll at the Federal Reserve Board and David Laibson at Harvard University, conclude that the least costly financial decisions occur around age 53.

According to psychological research, cognitive ability is at its height around age 20, yet financial wisdom may be low; an older person may have less cognitive ability, but more financial wisdom. These two paths cross at middle age, the authors argue, and set an optimum age for making the smartest financial decisions.

The authors also analyze regulatory regimes that may help all individuals avoid making financial mistakes including:

  • Recognizing that improved disclosure is not necessarily effective in improving financial choices, because complexity may still overwhelm consumers
  • Helping consumers evaluate if they are sophisticated by giving them tests of financial savvy
  • Regulators could increase the fiduciary duties of individuals that sell financial products. For example, all sales of financial products could be required to be conducted by an agent with a fiduciary duty.

To read the full paper, visit: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=973790

To speak with Professor Gabaix, contact him directly at 212-998-0257, xgabaix@stern.nyu.edu; or contact Rika Nazem, NYU Stern’s Office of Public Affairs, 212-998-0678, rnazem@stern.nyu.edu.

Contacts

NYU Stern
Professor Xavier Gabaix, 212-998-0257
xgabaix@stern.nyu.edu
or
Rika Nazem, 212-998-0678
rnazem@stern.nyu.edu

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Contacts

NYU Stern
Professor Xavier Gabaix, 212-998-0257
xgabaix@stern.nyu.edu
or
Rika Nazem, 212-998-0678
rnazem@stern.nyu.edu