It's hardly surprising that mental ability, including financial know-how, declines with age.
Yet a new study finds that accredited investors in their 80s are not only likelier to be less financially literate then their counterparts just a few years younger, but even of high school dropouts.
In other words, once well-to-do investors get into their twilight years, their financial smarts drop off considerably.
Older investors fared the poorest when asked basic financial literacy questions like "The benefit of owning investments that are diversified is that it... 1) reduces risk, 2) increases return, 3) reduces tax liability" and "True or False: An employee of a company with publicly traded stock should have a lot of his or her retirement savings in the company's stock."
Accredited investors only. Financial literacy score out of 100.
This matters in regards to their ability to manage their own day-to-day finances and investments. It also matters because of their unique status as accredited investors -- defined by the Securities and Exchange Commission as people with a net worth of at least $1 million or a household income of at least $300,000.
Someone classified as an accredited investor has more investment options than a regular Joe, and as such may invest in riskier assets, like private equity, venture capital and hedge funds, for instance.
Older accredited investors likely have more money to plow into investments too. While non-accredited investors see their wealth peak around 65, accredited investors' wealth plateaus at age 80, according to the study.
The fact that wealth is used as a proxy for deciding who is and isn't a "sophisticated" investor is based on the logic that if you have more money, you can better withstand losses.
Yet, some have argued that wealth alone isn't necessarily a good way to measure financial sophistication and the authors of the study suggest alternative criteria might be considered in determining who's an accredited investor.
Overall, accredited investors account for 8% of the U.S. population but hold 70% of the country's total household wealth. Less than 1% of the entire population are accredited investors over 75, and they lay claim to some 8% of the country's entire household wealth.
