August 26, 2014
A Financial Plan for Alzheimer’s
First, the facts from the Alzheimer’s Association. At age 65, one in nine individuals has Alzheimer’s disease. At 85, the risk exceeds one in three. Its victims are more often women.
In the Ted video above, the global health consultant and writer Alanna Shaikh disclosed that her professor-father had Alzheimer’s. Since it can be hereditary, she’s preparing to possibly share his fate, by keeping her mind active and by learning to do things with her hands, such as knitting.
Shaikh doesn’t discuss financial preparations. But experts have some suggestions, chief among them getting one’s will, health care directive, and perhaps a power of attorney in order. Paramount in this process is finding trustworthy people to handle your affairs. You can also arrange for a lawyer or outside mediator if family members disagree about your care.
The Alzheimer’s Association recommends putting a financial plan in place as soon as there is a diagnosis. “Financial planning often gets pushed aside because of the stress and fear the topic evokes,” the association said in this new booklet. “The sooner planning begins, the more the person with dementia may be able to participate in decision making.” …Learn More
June 19, 2014
Aging, but Oblivious
Older people often wonder why young adults get tattoos that they’ll later want to remove.
In this Ted video, psychologist Dan Gilbert says tattoos are a good example of a universal error in thinking. …
June 17, 2014
Depression Up After Pension Benefits Cut
Sudden changes in older workers’ financial expectations for retirement can cause depression, according to a 2011 study.
The study, which came out of the Netherlands, suggests that cuts in Dutch pensions, announced on very short notice, produced feelings of differential treatment and a loss of control that increased the incidence of depression among the workers who were adversely affected.
Workers were tested for depression two years after a 2006 pension reform reduced the share of their salaries replaced by the government-mandated defined benefit pension plans provided by employers.
Workers born in 1950 and after suddenly learned their “replacement rate” – the percent of pay the pension replaces – would drop to 64 percent, from the 70 percent initially promised. Everyone born before 1950 was unaffected. To replace the lost benefits, workers facing the cut would either have to save substantially more or work an additional 13 months. …Learn More
June 5, 2014
Test Yourself for Dementia
Dementia is a critical personal finance issue when so much is at stake in managing, investing, and spending one’s lifetime savings. But one study found that, in the vast majority of older couples, the person in charge of managing the household finances continues to do so after dementia sets in.
Dementia can be difficult to perceive in oneself or a spouse or parent, because changes are usually so gradual, psychologists say.
Individuals can now get a rough assessment of their own or a loved one’s cognitive abilities with a test posted on the website of Ohio State University’s Wexner Medical Center in Columbus. Spokeswoman Elaine Scahill said more than 900,000 people have downloaded the test since it went online in mid-January as a public service.
The test, appropriately named SAGE – for Self-Administered Gerocognitive Exam – is similar to others used by mental health professionals as an initial screen; another one is the Montreal Cognitive Assessment. …
March 25, 2014
Do Incentives Create Lax Loan Standards?
The answer to the above question is definitely “yes,” according to new research by professors Sumit Agarwal at the National University of Singapore and Itzhak Ben-David at Ohio State.
They examined 30,000 small business loans made in 2004 and 2005 to compare the loans made by salaried bank officers with those made by officers working under a commission system. The commissioned lenders were paid 80 percent of their former salary, plus commissions based on the number of loans they originated, their dollar amount, and how quickly they were approved.
Not surprisingly, the researchers found that commissioned officers, responding to these incentives, originated 31 percent more loans and the dollar amounts per loan were nearly 15 percent greater – they were also often larger than what their clients had requested. …Learn More
March 6, 2014
Delay Retiring: A ‘Smart’ Decision
If postponing retirement can improve one’s financial security in old age, why do so many people rush to retire when they reach age 62?
Much research has explored the financial and health reasons that explain why so few people choose to retire later. Taking a different tack, a new study found that individuals with higher cognition foresee a higher probability of working longer.
There were two steps to this research.
First, participants in an Internet survey were asked if they planned to continue working full-time after age 62 and, separately, if they expected to work past 65. Participants were between the ages of 45 and 61.
Next, the researchers measured each survey participant’s “crystallized intelligence,” which is the wisdom acquired with age. This type of intelligence helps to compensate for declining “fluid intelligence” – the ability to think quickly – which peaks in young adulthood. To measure their crystallized intelligence, participants took a standard psychology test in which they are shown pictures – perhaps a goat, maracas, a sextant (an astronomical instrument) – and asked to name them. …Learn More
March 4, 2014
New Book Spotlights Behavioral Finance
Did you know that an investor may be more likely to hold on to a money-loser if he bought it himself than if he inherited it? That people born with the “warrior gene” will take more risks? Or that trust is essential to whether individuals prepare for retirement?
A new edited volume, “Investor Behavior: the Psychology of Financial Planning and Investing,” is a thorough tour of the research on these and other aspects of behavioral finance. The book was compiled for financial planners, investment professionals, academics, and finance students and edited by two finance professors, H. Kent Baker of American University’s Kogod School of Business and Victor Ricciardi of Goucher College.
The field of behavioral finance is gaining traction as financial experts increasingly recognize that psychology, sociology, neurology and other fields may have something to say about why people behave the way they do around money.
Traditional theories explaining investor behavior, such as modern portfolio and utility theory, assume that people make “rational” choices. In contrast, the research covered in this new book tries to explain why financial decisions are not always rational, are often infused with emotion, and can be very predictable. Or, as 1978 Nobel laureate Herbert Simon once explained, orthodox finance’s “traditional paradigm did not describe the behavior of real people,” the book says. …Learn More