A new study co-authored by Wharton’s Olivia Mitchell reveals an alarming drop in financial and health literacy levels for older men and women over the span of 12 years.
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Older adults with declining financial and health literacy are at risk of making mistakes that could significantly impact their well-being. They could, for instance, make wrong decisions on when to claim Social Security payments, become vulnerable to financial scams, or choose the wrong health care insurance.
New research by experts at Wharton and elsewhere takes a close look at where those literacy guardrails give way. Their study breaks fresh ground by tracking age-related declines in financial and health literacy over 12 years among 1,075 older men and women without dementia. The findings of the research are published by the Journal of the Economics of Ageing in a recent article titled “Declining Financial and Health Literacy Among Older Men and Women.”
“For the first time, we have been able to follow the same people over time, and we discovered that both older men and women exhibit declining financial and health literacy as they age,” says Olivia S. Mitchell, Wharton professor of business economics and public policy, who is also executive director of Wharton’s Pension Research Council. “This is important since previous work has only been able to measure financial literacy at a specific point in time, but did not follow the same people over time.”
Financial and health literacy scores are based on a 32-item measure, which includes questions on numeracy, financial terms and concepts, Medicare, and prescription instructions. The study finds that the average baseline score of 69.5% declined with advancing age by about one percentage point annually.
“The fact that people’s financial and health literacy falls by a percentage point per year of age is alarming, since our sample was age 81 on average, and we followed them for about 12 years,” Mitchell says. “A 12% drop in performance in terms of financial and health literacy scores would take the baseline score from about 70% to below 60%.”
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