Saturday, January 31, 2015

Are You as Smart as a 20 Year Old?

     Do you get smarter as you get older, or does time slowly erode your cognitive abilities? A study from the University of California at Riverside and Columbia University, with the mind-bending title "Complementary Cognitive Capabilities, Economic Decision Making and Aging" has the answer.

     Researchers tested a group of 20-somethings and people in their 60s and 70s in various subjects, focusing on economic questions such as basic financial literacy, knowledge about debt, how much the participants thought about their financial futures. Despite a general loss of mental acuity, the older group did better than the younger test-takers in virtually every category.

     How is that?

     Researchers explained the results by teasing apart two different kinds of intelligence. "Fluid intelligence" involves short-term memory, problem solving and the ability to manipulate information and process it quickly. "Crystallized intelligence" consists of a "stable repository of knowledge acquired through experiences, culture and education."

     As we age, we lose fluid intelligence, but gain crystallized intelligence. “For decisions that rely heavily on processing new information, it is likely that the negative effects of aging will outweigh its positive effects relatively early in middle age,” the study concludes. “On the other hand, if the decision relies on recognizing previously learned patterns in a stable environment, age may be an advantage.”

     I read in an article in last week's New Yorker about the University of New Hampshire mathematician Yitang Zhang. The article notes that mathematics is a "young man's game" and quoted an expert who said, "I do not know of an instance of a major mathematical advance initiated by a man past fifty."

     As we might imagine, mathematics involves lots of fluid intelligence, not as much crystallized intelligence. But of course, the point of the article was that Zhang is an exception to the rule. He solved a problem about prime numbers called "bound gaps" when he was 55.

     Anyway, it turns out for most day-to-day financial decisions it’s better to rely on knowledge, experience and “previously learned patterns” than it is to exhibit an ability to quickly process new information. Here are just some of the areas where older people in the survey outshined their younger counterparts:

     Perhaps older people can’t solve an equation quite as fast as their sons and daughters, but they demonstrated a better understanding of finance and debt. They are more likely to avoid carrying credit card balances and are wary of incurring other financial costs such as high bank fees.

     Older people show more control over their emotions, and so they are more skeptical about jumping on the latest investment trend or buying a stock on a "hot" tip. Older people are less likely to get sucked into a financial bubble -- whether it was the internet bubble of the early 2000s or the real-estate bubble of the mid-2000s.

     Older investors prove better at avoiding irrelevant information. They can tune out the noise from CNBC and other financial media, and focus on significant trends and their own long-term objectives

     The older people show a sense of their own limitations. Younger people can be cocky and overconfident. But their older brethren are aware that sometimes forecasts don’t pan out, and so they have the mental fortitude to take a small loss now rather than wait around for a complete catastrophe.

     They are more patient, better able to weather the ups and downs of the market, without panicking. Younger people who can process information more quickly make better day traders, but day traders almost always lose money. People who are slowly building up wealth over time are the ones who win out in the end.

     The researchers tested out the difference between fluid intelligence and crystallized intelligence in the area of finance and economics. But it seems to me the advantage of crystallized intelligence would carry over into a lot of other areas of life -- such as whether or not to take a new job; how suitable is that boyfriend or girlfriend; maybe you're too young to get married; is that really a good living arrangement.

     I always told my kids that if we all just did what our mothers told us to do -- no questions, no arguments -- we'd all live better lives. Of course, I said that with tongue in cheek. But I really meant it. Or, to put it another way, perhaps father really does know best!


Florence said...

Perhaps "Crystalized Intelligence" = Wisdom. And of course, the old saying, "With age comes wisdom." I think it is important to continue learning and not dismiss something just because we are unfamiliar with it, but it is also important to weigh our experiences and our previous learning.

Olga Hebert said...

I knew there was a reason I didn't invest money until later in life.

Anonymous said...

I have a R.Ph. who is my only childs age 37 she saved me a bundle on getting me the correct prescriptions I need rolled into 2 pills vice 6 and I feel better my blood pressure was getting to be critical..The doctor who treated me with his many prescriptions had a melt down gone for 4 months this is a HMO, I nearly left the clinic, it was a hell hole.!!!!!!!This tiny pharmacist saved me time and money co-pays and tons of pills that were not doing shit for my blood pressure, yes the youngins do know what they need to know and do it for us 66 year old high blood pressure people!

June said...

Upon reading your title and nothing further, my thought was, "Would you want to be?"

Stephen Hayes said...

Interesting about Math being a young man's game. I have a theory that math isn't real, but people accept it because it provides us with marvelous toys. But as far as I'm concerned, since mathematical equations can only be proven using more math, I hold it all suspect. Of course I was crappy at math in school so this could just be sour grapes.

DJan said...

I know I am different in the ways I process stress, both good and bad, as a senior. In some ways it's better, but in most ways, I don't have the resilience I did when I was young and could make a mistake and have the time and energy to recover from it. Interesting post, Tom. :-)

Marianne said...

I agree with DJan. I understand and know a lot about the past but current information is becoming much harder to understand. Making decisions is a slow process because I fear making those mistakes and I cannot recover from them.

Pam said...

I believe we definitely need one another!! The world is better off having the young, middle-aged and seniors living and working together. I rely on my kids for their technical savvy and their strong backs when something heavy needs moved. They rely on me for all kinds of advice. Together we are better.

#1Nana said...

Together we know it all...when I visit my 88 year old father, we go to a Wednesday night trivia contest at a local pub. Our team is made up of three generations. Last time we played we won! If we had a family member who knew something about sports, we'd win every week!

Anonymous said...

I am not a genius, but I am much better at handling stress now than when I was young.

Anonymous said...

Will the psychologists ever stop this business? Of course we are older and wiser, although we can't name the latest rock star, or I can't. I don't know if they do rock anymore.

Friko said...

yes, father and mother do know best; but so did our fathers and mothers.

However, where would we be if we listened to the voice of experience instead of making mistakes ourselves and thereby gaining experience.

Cumulative knowledge is not a bad thing either.

Darkseas said...

Interesting article in today's Wall Street Journal in which it is argued that people who don't grasp basic math tend not to be good with things financial. Another study, of course.

Math being "a young man's game" doesn't apply here. The kind of math Yitang Zhang is talking about is the kind that is comprehensible to maybe 1/100th of 1 percent of the world's population. He isn't talking about algebra, geometry, calculus, or statistics (much less percentages and fractions).

As for fluid and crystallized intelligence, those categories are complete rip-offs of Daniel Kahneman's work (see _Thinking Fast and Slow_).

Kirk said...

I still am better at math than my 20 y/o daughter. But since she's a music major I don't count that as a high bar to cross.