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HAPPY NEW YEAR! The good news is you’re alive to see the beginning of another year. The bad news is you’re getting older with each passing day. Aging has a huge impact on your financial decision-making ability and the end result isn’t always good.
As you age, your overall mental cognition and “fluid intelligence” decline. The speed at which you process information and make decisions starts changing in early adulthood.
Some forms of intelligence, however, actually improve as you age. Researchers have found that the ability to access and apply experiential knowledge improves over time.
SIMPLE/ROUTINE VERSUS COMPLEX/NON-ROUTINE
As you get older, simple/routine decisions might become easier, while complex/non-routine decisions become more challenging. Many financial decisions fall into the non-routine/complex category. Add to this equation a generally low level of financial aptitude and you have a dangerous mix.
Perhaps you’ve heard about the “Granny Scam” where fraudsters call an unsuspecting grandparent posing as a friend of their teenage/young adult grandchild. They say that the grandchild is in trouble and needs their immediate financial assistance. They are usually instructed to wire funds from a nearby grocery store. The scam has drama, emotion, and urgency. All these factors combined with the complex/non-routine aspect of the transaction create a powerful formula.
Many financial decisions carry the same complexities mentioned above. You generally don’t make big financial decisions every day. The unfamiliar nature of many financial choices can make your decision-making process challenging.
HOW TO MAKE BETTER FINANCIAL DECISIONS
If you find yourself having difficulty grappling with the information needed to make financial decisions, rest assured you’re not alone. In situations where you have no experience or context, it’s easy to make mistakes.
We have worked with hundreds of clients over the years, and everyone has different goals and aspirations. Despite the differences, most clients have at least one common trait…the desire to simplify their financial life.
If you set up a simple, replicable framework for making financial decisions, you minimize the space for big mistakes. The more routine and simple your decision-making structure is the better.
Of course, with age, you bring additional color and context to your intellectual life. That may indeed be an advantage in some circumstances. Academic research has found that older, more experienced investors are less apt to make impulsive choices than the younger cohort.
You’ve no doubt heard the adage, “Old age isn’t so bad when you consider the alternative.” The wisdom, patience, and sense of self that you have are things many younger people desire. Enjoy the ride. Set your financial decision-making process up for success. Start there. Ready for a real conversation?
Related: Why Are You Investing?