There are many important decisions that older people make. There is growing concern over their ability to make them well. To be longevity literate we have to know when to hand over to someone else.

Older people make financial decisions about investments and pensions. For this they need to have financial literacy. At the same time, they are making decisions about their care, their prescriptions and their health. Over the past two decades there have been a number of studies on financial and health literacy. Each tries to measure literacy declines that come with age.

This is still an emerging field. There is still a debate about these literacy measures. Are they measuring more than underlying cognitive ability. There are standardized scales especially for financial literacy. Studies have been done using large cross-sectional data. Others have tracked individuals over time in longitudinal designs.

What do we know?

Last year an article was published that reported an interesting sample and study. This was a longitudinal study of over 1000 people in the US. The average age at the start of the study was 81. None of the sample were suffering initially from dementia. Those individuals were then tested every year for an average of 6 more years. In some cases, people were tested for a further 10 years.

Literacy is understanding the fundamental concepts needed to make effective decisions. Individuals need to understand the terminology and concepts. Financial Literacy was measured using 23 questions. Eight simply measured numeracy. The other fifteen assessed knowledge of financial terms and concepts. There were nine questions on medical literacy. These assessed the ability to follow doctors’ multiple prescriptions. Knowledge about major health risks and assessing the probability of drug side effects.

At the start of the study the average financial literacy was 79% . Medical literacy was lower at 64%. The average decline was 1% per year in both. There was however huge variability as illustrated by the figure. This left hand side of the chart (A) shows the results for a sample of 100 people from the stidy. The chart on the right (B) shows the same data with a smoothed curve

Each line represents and individual as they age. It is clear that there are people whose combined financial and medical literacy went up. There are others with steep decline. There are indications that education and affluence slow the decline. There are, however, huge variations which poses problems for policy makers and marketeers.

What is the impact of declines in financial and medical literacy?

Medical and Financial decision-making was tested. The results showed poorer decision making as literacy declined. Detailed cognitive ability assessments were taken as well. These were added to the analysis. The association between literacy score and test performance was reduced. However it still had a significant impact. The literacy measures are tapping into something different. The rate of decline also influenced the resulting test scores. This was in addition to the absolute score.

As part of the study these participants were having their psychological well-being assessed. Their level of literacy and the rate of decline both had a negative impact. Detailed analysis showed the importance of the ability to manage one’s health and money. They are part of the sense of purpose and control. It is not just the perceived absolute ability but the sense of decline that matters.

Longevity Literacy

These respondents are in the last decades of their lives. They will be coping with increasing numbers of chronic illnesses. Physical frailty will be increasing. They still do well. A different large cross-sectional study measured financial literacy across all age groups. Literacy grew and peaked in the mid-fifties. It plateaued and then declined from the age 65-69. By the age of 70-74 the average person still had the same literacy score as someone aged 25-29. This cross-sectional data showed a decline of between 1 and 1.5% per year. All data seems to support the decline and the risks.

One risk is of particular concern. Various organizations have looked at the susceptibility to scams with age. Tests of scam susceptibility were in this study. One of the questions, for example, was whether people would accept a cold call about a financial product. As financial and medical literacy fall the susceptibility to being scammed does increase. Other studies have shown that being scammed can impact health and wellbeing. The large cross-sectional study suggests one possible explanation. They measured financial literacy but also confidence in that ability. Confidence did not decline with age. There is a growing gap between what we can do and what we think we can do.

However, taking control away from anyone is traumatic. Removing control of health and money is as stressful as telling them to stop driving. Self-regulation in driving is well known. People adjust their use of a car to fit their abilities. That requires self-awareness. There is, it seems, less financial and medical literacy self awareness.

Ageing gracefully is about making your own decisions. Even if that is to stop driving or investing. How to make that possible?