Aging Impacts Financial Skills: Importance of Cognitive Health

A recent study led by Ian M. McDonough, an Associate Professor of Psychology at Binghamton University, provides important insights into how aging affects financial management and strategies for maintaining cognitive sharpness in later life.

Co-authored by Macarena Suárez-Pellicioni from the University of Alabama, the research article is titled “Separating neurocognitive mechanisms of maintenance and compensation to support financial ability in middle-aged and older adults: The role of language and the inferior frontal gyrus,” and has been published in the Archives of Gerontology and Geriatrics.

Research Overview

The research focused on cognitively healthy adults aged 50 to 74, utilizing MRI scans to examine brain structure and functional connectivity.

Participants engaged in simple financial tasks, such as balancing a checkbook and managing change, to assess their financial skills.

Financial capabilities rely on a range of cognitive functions, including memory, executive functioning, and numerical reasoning.

As people age, these cognitive domains may experience subtle declines.

While prior studies on financial management and cognitive decline have concentrated on the parietal cortex—which is linked to attention and the ability to predict outcomes—less attention has been directed toward brain regions crucial for mathematical processing, especially in older adults.

Cognitive Mechanisms and Financial Management

Mathematical processes engage two distinct areas of the brain.

The inferior frontal gyrus is primarily accountable for retrieving stored mathematical information.

For instance, when someone is asked a simple question like “What is 3 plus 3?” they can quickly respond with the answer due to years of memorization.

On the other hand, when people are unable to recall information instantly and need to perform calculations, the middle frontal gyrus becomes active.

This process requires more cognitive effort and increases the likelihood of errors.

Thus, if a person has memorized an equation, they can more easily and accurately recall the answer.

Aging leads to shrinkage in the prefrontal cortex, and those with Alzheimer’s experience even quicker degeneration in these regions.

This decline may cause older people to struggle with financial tasks, transitioning from the retrieval of memorized knowledge to engaging other cognitive areas to compensate for this decline.

These cognitive changes can make older people more vulnerable to financial scams, underscoring the necessity of understanding brain alterations to create targeted interventions.

The research implies that sound financial management may rely significantly on language skills alongside numerical abilities.

Improved proficiency in language appears to enhance performance in financial tasks, likely due to better connectivity among various brain regions.

Protective Factors and Strategies

The study also found that higher household income and financial literacy, which are both indicators of socioeconomic status, serve as crucial protective factors against the decline in financial capabilities associated with aging.

Creating an environment that fosters financial literacy is vital for establishing foundational knowledge required for effective financial decision-making.

To maintain strong decision-making skills regarding finances, financial education is paramount.

Continuous practice of mathematical concepts learned in earlier education, particularly through verbal reinforcement, could help sustain effective financial management as people grow older.

Additionally, both people and their caregivers should be alert to signs of cognitive decline that may increase the risk of financial exploitation and scams among older adults.

Utilizing financial tools, technologies, and legal safeguards, such as setting up power of attorney for automatic payments, can offer protection while enabling older adults to maintain their independence in financial choices.

Effective financial management is essential for preserving independence in later life, making interventions aimed at enhancing brain function crucial for supporting healthy financial practices.

Study Details:

• Title: Separating neurocognitive mechanisms of maintenance and compensation to support financial ability in middle-aged and older adults: The role of language and the inferior frontal gyrus.
• Authors: Macarena Suárez-Pellicioni, Ian M. McDonough.
• Journal: Archives of Gerontology and Geriatrics.
• Publication Date: 2025.
• DOI: 10.1016/j.archger.2024.105705