Time Value of Money Fundamentals
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Transcript Time Value of Money Fundamentals
Fluid Intelligence
Cognitive Theory
Word Recall Test
(immediate and delayed average, 2010 Health & Retirement Study)
6
Episodic Memory
5.5
5
4.5
4
3.5
3
60
(Source:)
65
70
75
80
85
90
Rates of cognitive impairment by Age
(Source Agarwal, Driscoll, Gabaix and Laibson, 2010)
80
70
60
39
50
40
Cognitive impairment,
not demenita
Dementia
29
30
20
10
0
37
16
24
5
71-79
80-89
90 +
Interest Rates on Loans
Financial Literacy
(TTU Financial Literacy Assessment Project)
Examples of questions:
8. Savings accounts and money market accounts are
most appropriate for
1 Long-term investments like retirement
2 Emergency funds and short-term goals
3 Earning a high rate of return
17. If you have an insurance policy with a higher
deductible, the premiums will be
1 Higher
2 Lower
3 The same
Investments
13. The benefit of owning investments
that are diversified is that it
1 Reduces risk
2 Increases return
3 Reduces tax liability
15. The main advantage of a 401(k) plan is that
it:
1 Provides a high rate of return with little risk
2 Allows you to shelter retirement savings from taxation
3 Provides a well diversified mix of investment assets
Age and Literacy
Literacy and Confidence
90
Financial Literacy
Confidence
80
70
60
50
40
30
20
10
0
60
65
70
75
80
85
By Topic Area
Basic
Borrowing
Investment
Insurance
3.5
3
2.5
2
1.5
1
0.5
0
60
65
70
75
80
85
Equity allocation and cognitive decline
Percent change in Equities 2008-2010 by Word Recall
0
Lowcog
Avgcog
Highcog
-5
-10
-15
-20
-25
-30
-35
-40
Median
Who Pays for Financial Advice?
(By Age & Type of Advice)
40
35
30
25
20
15
10
5
0
<35
35-44
45-54
Transaction-based
55-64
Comprehensive
(Source: Finke, Huston, and Winchester, 2011)
65+
Accepting Cognitive Aging
Decline in financial decision making ability mirrors
decline in cognitive ability in advanced age
Importance of planning for cognitive decline
Similar to decline in driving
But, when drivers given objective evidence of
declining skills, they change behavior (Holland & Rabbitt, 1992)
Thank You!
Michael Finke
[email protected]
www.pfp.ttu.edu