The Young and Old Struggle with Money for the Opposite Reasons
Young people need financial literacy, and older people need financial advisors.
That is one of the primary takeaways from this first entry in the Dollars and Decades series, where I’ll dive deep into the research to help you make better financial decisions at every age throughout your life.
Read to the end of this post to learn:
Why so many feel ill-equipped to manage money
The young and old each have what the other needs and it’s why people struggle with money regardless of age.
Young people have higher cognitive functions — Meaning they have a superior capacity to process information.
When you buy a new laptop, everything loads instantly. But over the years, your hard drive gets filled to capacity, and the processing power of your laptop doesn’t keep pace with the increasingly complex software and apps you’ll use in the future.
Your brain is the same way — The older you get, the lower your ability to process and make sense of complex tasks.
But older people have what the young don’t have: experience. A lifetime of making financial decisions and learning from mistakes allows older people to effortlessly make decisions around spending and saving money that younger people struggle with.
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The cruel irony in life — and the reason we all struggle with money — is that the strengths of the young and old don’t align with the financial decisions they need to make.
Young people have relatively simple financial tasks like learning how to manage a credit card or create a budget. Their high cognitive functioning is wasted on these tasks. Most people need to learn the basics of personal finance by gaining experience — often through making and learning from mistakes.
The old have much more complex issues, like estate planning or how to turn retirement savings into retirement income. Although they have a lifetime of managing the types of financial issues young people struggle with, they likely have no experience with the financial decisions that come when transitioning from the accumulation phase (building wealth) to the decumulation phase (living off wealth). They are once again inexperienced in these new tasks, and their reduced cognitive capacity impacts their ability to handle these issues on their own.
Youth is wasted on the young, and the benefits of experience have limitations.
Young people need the wisdom and experience that older people have, and old people need the health and sharp minds given to the young. Put another way, “young people need financial literacy, and older people need financial advisors.”
Stay tuned; this is just the first in a new ongoing series I am writing about making better financial decisions at every stage of life.
A version of this story was originally published on the Making of a Millionaire Substack, the home of my writing. As a thanks for reading my work, existing readers can get 75% off their first year’s subscription here.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.