Working Paper: NBER ID: w25750
Authors: Hugh Hoikwang Kim; Raimond Maurer; Olivia S. Mitchell
Abstract: 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.
Keywords: Cognitive Ability; Financial Literacy; Financial Advice; Older Adults
JEL Codes: D14; G11; G41; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial literacy (G53) | Distrust in financial advisors (G24) |
| Cognitive ability (G53) | Likelihood of seeking financial advice (G53) |
| Financial literacy (G53) | Likelihood of seeking financial advice (G53) |
| Cognitive ability (G53) | Quality of financial advice sought (G53) |
| Financial literacy (G53) | Quality of financial advice sought (G53) |
| Cognitive ability (G53) | Type of advice obtained (G53) |
| Financial literacy (G53) | Type of advice obtained (G53) |
| Cognitive ability (G53) | Distrust in financial advisors (G24) |