“The Age of Reason: Financial Decisions over the Life Cycle and Implications for Regulation”, 2009 (; backlinks; similar):
Many consumers make poor financial choices, and older adults are particularly vulnerable to such errors. About half of the population between ages 80 and 89 have a medical diagnosis of substantial cognitive impairment.
We study life-cycle patterns in financial mistakes using a proprietary database with information on 10 types of credit transactions. Financial mistakes include suboptimal use of credit card balance transfer offers and excess interest rate and fee payments.
In a cross section of prime borrowers, middle-aged adults made fewer financial mistakes than either younger or older adults. We conclude that financial mistakes follow a U-shaped pattern, with the cost-minimizing performance occurring around age 53.
We analyze 9 regulatory strategies that may help individuals avoid financial mistakes. We discuss laissez-faire, disclosure, nudges, financial “driver’s licenses”, advance directives, fiduciaries, asset safe harbors, and ex post and ex ante regulatory oversight. Finally, we pose 7 questions for future research on cognitive limitations and associated policy responses.