As populations around the globe continue to age, understanding how cognitive changes affect everyday skills remains a critical focus for both scientific inquiry and public health. A groundbreaking study conducted by researchers at Binghamton University, State University of New York, offers fresh insights into the complex interplay between aging, cognitive health, and financial self-awareness. Contrary to common assumptions that financial abilities uniformly decline with age, this extensive research reveals that older adults often develop a heightened awareness of their financial capacity—a cognitive skill that appears to sharpen with experience. However, the study also highlights how neurodegenerative disorders, particularly Alzheimer’s disease, profoundly disrupt this self-perception, leading to potentially harmful consequences.
Financial competence is an essential pillar of independent living, influencing everything from daily transactions to long-term planning for retirement, healthcare, and estate management. Despite its importance, the trajectory of financial skills over the lifespan—and individuals’ accuracy in assessing these abilities—has not been fully delineated, especially in the context of cognitive decline. To tackle this gap, the lead investigator, psychologist Ian McDonough, along with his team, analyzed a decade’s worth of data from a large-scale, longitudinal cohort consisting of 2,800 older adults. Participants were asked not only to rate their confidence in managing various financial tasks but also to directly demonstrate their proficiency through practical challenges such as bill payment, change making, and complex problem-solving scenarios like calculating a 10-year gym membership cost.
The results defy prevailing stereotypes, showing that older adults often possess acute insight into their financial skills, and this meta-cognitive awareness actually improves with age—likely an adaptive function of accumulating experience. McDonough explained that this enhanced self-monitoring may be attributed to the increased exposure older adults have to diverse financial situations, such as interacting with social welfare systems like Social Security, Medicaid, and Medicare, which demand higher financial literacy and vigilance. This cognitive refinement in healthy aging signifies that experience, alongside preserved cognitive faculties, can enhance the calibration of perceived versus actual financial ability.
However, the protective association between age and financial self-awareness sharply dissipates in individuals diagnosed with Alzheimer’s disease. The neurodegenerative progression characteristic of Alzheimer’s erodes the neural networks responsible for self-monitoring and executive function. A phenomena known as anosognosia—where patients lose insight into their own cognitive deficits—is common in Alzheimer’s, yet research on anosognosia has historically centered on memory impairment, leaving financial self-awareness relatively unexplored. McDonough’s study represents one of the early systematic efforts to investigate how anosognosia extends to financial cognition, revealing causative links between disease severity and the divergence between perceived and actual financial skills.
In patients with Alzheimer’s, the divergence manifests in two troubling ways: some individuals overestimate their capabilities despite poor financial judgment, while others underestimate themselves despite retaining some competency. This discordance imposes significant risks, including unintentional financial mismanagement and increased vulnerability to exploitation. From a neurocognitive perspective, the study implicates deteriorations within frontal lobe circuits, which govern self-assessment, planning, and risk evaluation, as central to this impaired self-awareness. Therefore, Alzheimer’s undermines not just financial cognition, but also the crucial internal feedback loops that inform adaptive decision-making.
The implications for clinical practice and caregiving are profound. Early identification of declining financial insight could serve as a sentinel indicator for cognitive dementia, prompting timely interventions. McDonough advocates for proactive financial safeguards implemented at early stages of cognitive decline. These include collaborative management strategies where trusted family members or caregivers assist in establishing check-and-balance systems, power of attorney arrangements, and transparent sharing of financial information. Such measures aim to preserve autonomy while mitigating the risk of fraud, unpaid bills, and financial distress, which are all too common in this vulnerable demographic.
The delicate balance between maintaining independence and ensuring protection requires nuanced communication and ethical sensitivity. Many older adults with early Alzheimer’s vehemently resist external intervention, perceiving such actions as threats to their dignity and control. McDonough points out that this resistance is expected given the psychological importance of financial autonomy, necessitating specialized counseling frameworks that respect individual agency while prioritizing safety.
This study not only enriches gerontological literature but also opens avenues for interdisciplinary collaborations involving cognitive neuroscience, psychology, and financial management. Future research initiatives aim to chart the neural correlates of financial decision-making using functional neuroimaging as well as to assess the impact of digital literacy on older adults’ capacity to safely engage with increasingly prevalent online banking and financial technologies. Such endeavors could help formulate targeted cognitive training and educational interventions to bolster financial resilience in an aging society.
The methodological rigor of this investigation is underscored by its reliance on the ACTIVE cohort, a well-established longitudinal study that integrates subjective self-assessment with objective performance metrics over an extended timeframe. This approach enables a dynamic understanding of the evolving relationship between perception and reality within financial cognition, advancing theoretical models of aging and neurodegeneration.
Published in the prestigious journal The Gerontologist, the paper titled “Relationship between Perceived and Objective Financial Abilities Among Older Adults: Results From the ACTIVE Cohort,” will be accessible on June 2, 2025. It stands as an important contribution to evidence-based strategies aimed at enhancing quality of life for older adults, particularly in the era of increasing lifespans and the rising prevalence of dementia.
By highlighting both the resilience and vulnerabilities embedded in aging financial cognition, the study calls for a societal paradigm shift. Financial literacy programs traditionally aimed at younger demographics must now expand to address the unique cognitive trajectories of older adults. Similarly, policymakers and healthcare providers are urged to integrate financial capacity assessments into routine elder care, bolstering the infrastructure around aging populations in a manner that is informed, compassionate, and scientifically grounded.
In summary, the evolving narrative about aging and cognitive health gains new clarity with this research: aging, when accompanied by preserved cognition, can enhance financial self-awareness, illustrating a form of cognitive wisdom. Yet, the onset of Alzheimer’s disrupts this harmony, challenging individuals and communities alike to devise intelligent and empathetic responses. As the world grapples with the complexities of aging societies, the intersection of neuroscience, psychology, and economics illuminated by this study represents a beacon guiding future innovations in elder care and financial wellbeing.
Subject of Research: People
Article Title: Relationship between Perceived and Objective Financial Abilities Among Older Adults: Results From the ACTIVE Cohort
News Publication Date: 2-Jun-2025
Image Credits: "Analyzing Financial Data" by Dave Dugdale is licensed under CC BY-SA 2.0.
Keywords: Alzheimer disease, Neurodegenerative diseases, Neurological disorders, Diseases and disorders, Health and medicine, Money, Economics, Financial management, Psychological science, Dementia, Cognitive disorders, Cognitive psychology, Memory disorders, Older adults
