It might be assumed that of all age groups, the older generation is the most financially literate. With a lifetime of experiences, they have already made many financial decisions leading up to retirement. But the 2004 Health and Retirement Survey and the 2009 Financial Capability Study show different results. Older respondents (50 and older) were less likely than all other age groups to respond correctly to three questions on financial literacy. In the 2004 study, only one-third of this group got all three questions right.

The surprising part of these findings is that these individuals have lived through major historical economic downturns and stock market declines. But these events in and of themselves were not education enough to preclude financial mistakes in later years. These findings were not restricted to the United States either. They were compared to an international sample group as well, only to come to the same conclusion: financial literacy declines with age.

The major disadvantage that comes with this issue is that the elderly are known to be a vulnerable population, thereby a target for scammers. Annamaria Lusardi wrote in the Journal of the American Society on Aging that our “financial landscape has become more challenging . . .

[with] new products and financial services . . . accessible to the small investor” with more opportunities to borrow. This becomes a significant problem to an already vulnerable population being presented with complex financial decisions that could devastate finances in retirement.

Another common issue with retirees is that roughly 65 percent retire with some type of debt. But this statistic isn’t surprising when the National Foundation for Credit Counseling found that over 50 percent of adults in the U.S. don’t have a budget. Furthermore, 22 percent didn’t have a good idea of how they spent their money. Given the lack of financial management over a lifetime, it is easy to see how debts are rampant in retirement.

Unfortunately, many baby boomers were relying on interest made off of savings and investments to carry them through retirement. But with economic downturns, interest rates have decreased, leaving seniors without the income they planned on. And with greater health costs in later years, their financial strain increases. As a result, many seniors have turned to risky investments to get by.

The Oxford University Press has released a new book on this subject entitled Financial Capability and Asset Holding in Later Life: A Life Course Perspective. This book recommends four major areas for improvement to combat this vulnerability: “build capacity at the individual and household level, create more effective institutions, design better public policies, and advance knowledge through research.” While directed at anyone interested in financial affairs, the opinions given are also meant for policymakers, as gaps in current policy are discussed. These insights on policy reform could alter the precarious financial situation of seniors.

Other resources are available for seniors and anyone planning on retirement to avoid financial vulnerability. NerdWallet, a personal finance website, has information and tools to help in becoming financially literate. For example, one article on social security benefits recommends a more strategic approach to claiming social security; most rush into a system they don’t understand and lose thousands of dollars as a result. But by making an effort to learn before retirement, by seeking out trusted financial advisors and tools, retirement can be a more financially stable time. While these resources may not benefit baby boomers now, we can all learn from the situation to ensure that this pattern of financial vulnerability in later life doesn’t continue.

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