How Cognitive Ability and Financial Literacy Shape the Demand for Financial Advice at Older Ages
We investigate how cognitive ability and financial literacy shape older Americans’ demand for financial advice using an experimental module in the 2016 Health and Retirement Study. We show that cognitive ability and financial literacy strongly improve the quality, but not the quantity, of financial advice sought. Most importantly, the financially literate and more cognitively able tend to seek financial help from professionals rather than family members, and they are less likely to accept so-called ‘free’ financial advice that may entail conflicts of interest. Nevertheless, those with higher cognitive function also tend to distrust financial advisors, leading them to eschew their services.
The authors thank Yong Yu and Destan Kirimhan for excellent programming and research assistance. Research funding for this project was provided by the TIAA Institute and the Pension Research Council/Boettner Center at the Wharton School of the University of Pennsylvania. Opinions and conclusions expressed herein are solely those of the authors and do not represent the opinions or policy of the funders or any other institutions with which the authors are affiliated, nor those of the National Bureau of Economic Research.
Olivia S. Mitchell
Mitchell serves as an Independent Trustee for the Wells Fargo Advantage Funds and has received more than $10,000 from the TIAA Institute for research on retirement security.