Financial well-being and age

Created date

March 25th, 2019

There are certain things that get better with age — fine wine, a well-seasoned cast iron pan, high-quality leather, just to name a few. And now we can add financial well-being to the list of things that improve over time.

A recent study by the Bureau of Consumer Financial Protection (https://bit.ly/2SZrwlu) found that people over age 62 have a higher sense of financial well-being than their younger counterparts. To measure financial well-being, study participants were asked how much they identify with statements like “I could handle a major unexpected expense,” “Giving a gift for a wedding, birthday, or other occasion would put a strain on my finances for the month,” and “I can enjoy life because of the way I’m managing my money.”

On a scale of 0 to 100, the average well-being score for adults over age 62 was 60, while younger folks averaged 52. Notably, the study found that financial well-being peaks at age 75.

California financial advisor Stewart Darrell (harrisfinancial.net) says the study mirrors what he sees with regard to financial well-being among his own clients.

“Older adults have generally had more time to save, plan for financial security, and adjust their lifestyle to match their reality,” he says. “They have lived more of their life, so they have a better sense for what is actually plausible and have adjusted accordingly.”

Of course, it’s not a forgone conclusion that financial well-being will improve as we get older. In fact, the survey found that 24% of older adults scored 50 or lower, indicating that they struggle to pay for basic needs, obtain credit, and pay for unexpected expenses.

Our sense of financial well-being may also be impacted by things like our health or marital status. Not surprisingly, things like carrying debt, having poor health, and unexpected job loss were all correlated with a decrease in financial well-being. On the other hand, the study revealed a positive correlation between financial well-being and home ownership as well as low monthly housing costs.

Importance of community

Interestingly, older adults who live with other people reported a higher sense of financial well-being. Darrell says he concurs with that finding.

“Isolation is generally painful for most people, and it typically only gets harder with age. Loss of mobility, deteriorating health and financial challenges can wreak havoc on anyone’s access to their support group of family and friends,” he says. “We see a big difference in our clients’ level of energy based on their social activities and level of involvement in their community, no matter their age.”

High levels of financial knowledge and skills were also positively correlated with financial well-being among seniors. Planning behaviors such as setting financial goals and using a budget can improve people’s sense of financial well-being.

New York long-term care and life insurance planner Michael Chapman (chapmaninsurancesolutions.com) says financial knowledge and skills tend to increase with age, so it makes sense that older adults tend to have a better sense of financial well-being.

“I find from my experience that the older my clients are in my practice the more flexible they are in budgeting toward plans for financial protection,” he says. “I also find this happens because the older they are, they usually have a better understanding of their specific finances and finances in general.”

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