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?
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."
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
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
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!