Financial Literacy, Experience, and Age Differences in Monetary Sequence Preferences

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Financial Literacy, Experience, and Age Differences in Monetary Sequence Preferences is a well-researched Social and Behavioral Sciences Thesis/Dissertation topic, it is to be used as a guide or framework for your Academic Research.

Abstract

The emerging research on age differences in monetary sequence preferences suggests that older adults make decisions that are normatively correct from the standpoint of economic theory when choosing to receive larger versus smaller amounts of money sooner than later, but make non-optimal decisions about paying money. In an adult life-span sample (N = 594, aged 20-88, Mage =46.48, SD = 15.16) recruited through MTurk, the present study examined age differences in
monetary sequence preferences.

Participants received eight hypothetical scenarios that describedmonetary events, and completed measures of financial literacy and financial experience. Older age was associated with preferences to receive larger amounts of money sooner than smaller amounts, the normatively correct decision, but age was not associated with preferences for sequences of paying money.

Older adults’ greater financial literacy and greater financial experience partially accounted for their normatively correct preferences for sequences of receiving money. Findings have implications such that interventions could target both financial literacy and experience to facilitate financial decision making across adulthood.

Introduction

Financial Literacy, Experience, and Age Differences in Monetary Sequence Preferences People of all ages make financial decisions every day. Older adults control more financial resources than people in their 20s, and thus, have much more at stake (Agarwal, Driscoll, Gabaix, & Laibson, 2009).

As the population age continues to increase dramatically, with a projected 17% of the world’s population aged 65 and over by 2050 (He, Goodkind, & Kowal, 2015), it is critical to understand how financial decision making may change across adulthood.

When deciding how to receive or pay money, people may show preferences for increasing or decreasing installments also referred to as monetary sequence preferences. Normative economic principles argue that for receiving money, one should take a larger amount of money sooner and the smaller amount later (i.e., decreasing installments; Loewe Stein & Sicherman, 1991).

For paying money with no accrued interest, one should pay the smaller amount sooner and the larger amount later (i.e., increasing installments). The rationale behind these monetary sequences is to maximize the current value of available liquid funds (Loewenstein & Sicherman, 1991).

Few studies to date have considered age differences in monetary sequence preferences. Those that have indicate that older adults make normatively correct sequence preferences for choices to receive money (Loewenstein & Sicherman, 1991; Strough et al., 2018), but non-normative choices to pay money (Strough et al., 2018). One aim of the current study was to examine how monetary sequence preferences when receiving versus paying money to vary across adulthood.

Some research proposes that older adults make normatively correct decisions when receiving money due to having accumulated knowledge of the importance of maximizing the present value of funds through life experience (Loewenstein & Sicherman, 1991).

When paying money, it has been suggested that older adults may make non-normative choices due to older adults applying their prior financial experience, such as avoiding the accumulation of interest on a loan (Strough, Bruine de Bruin, & Parker, 2018). That is, older adults may make inferences about a scenario by applying their knowledge and experience to ‘go beyond’ the provided information (Strough et al., 2016).

Furthermore, the literature on aging and financial decision making has yielded mixed findings. Some researchers have suggested that financial literacy scores are lower in old age (Finke, Howe, & Huston, 2016; Lusardi & Mitchell, 2011a; 2014), while others have argued that older adults’ financial literacy is greater in old age due to greater financial experience that may offset age-related cognitive decline (Li, Baldassi, Johnson, & Weber, 2013; Li et al., 2015).

Therefore, the second aim of the present study was to explore financial literacy and financial experience as two constructs to understand how they are each uniquely associated with age and monetary sequence preferences.

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Additional information

Type

Thesis/Dissertation topic

Category

Social and Behavioral Sciences

No of Chapters

5

Reference

Yes

Format

PDF

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