Financial Decision Making Across Adulthood

Abstract

Choices about money have serious consequences both for individuals and society, as reckless spending by young adults and financial scamming of the elderly all too clearly demonstrate. Recent evidence from psychology and neuroscience suggests that financial decision making capacity may peak at middle age, with unique vulnerabilities manifesting early and late in life. In this chapter, we review age differences in performance on a series of financial decision making tasks, including those involving monetary gain and loss, learning and risk, and intertemporal choice. Taken together, the evidence suggests that older adults do well when making decisions that rely on accumulated life experience and perform suboptimally in uncertain and novel environments that require fluid learning. Brain imaging reveals declines in frontostriatal function in the elderly that may explain the observed challenges on these dynamic behavioral decision tasks. In an effort to translate these findings from the lab to society, a small and growing literature has identified real-world financial decision correlates of performance on laboratory tasks. Such studies hold enormous promise for developing tools that can identify individuals at greater risk for poor financial decision making.