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Cognitive Ability, Cognitive Aging, and Debt Accumulation.
Marco Angrisani1, Jeremy Burke1, Arie Kapteyn1
1University of Southern California.
Journal of Banking & Finance
|June 16, 2025
Summary
Cognitive ability predicts debt in older adults. As financial products grew complex, those with higher cognitive ability took on more debt, leading to increased financial fragility.
Area of Science:
- Gerontology
- Cognitive Science
- Financial Economics
Background:
- Older adults face increasing debt and financial product complexity.
- Cognitive ability's role in managing financial burdens is understudied.
Purpose of the Study:
- Examine the relationship between cognitive ability and debt among older adults.
- Investigate how this relationship evolved with financial market complexity.
- Assess the impact of financial sophistication on debt exposure.
Main Methods:
- Analysis of longitudinal data from the Health and Retirement Study (1998-2014).
- Complementary analysis using Understanding America Study data (2015-2019).
- Statistical modeling to assess cognitive ability as a predictor of debt burdens.
Main Results:
- Cognitive ability is a significant predictor of debt levels in older age.
- In complex financial environments, higher cognitive ability correlates with higher debt.
- Financial sophistication drives the cognitive ability-debt relationship.
- Individuals with higher cognitive ability exhibit greater financial fragility in complex markets.
Conclusions:
- Cognitive ability influences debt accumulation, particularly in complex financial landscapes.
- Increased financial product complexity poses challenges even for cognitively adept older adults.
- Findings challenge the notion of widespread exploitation of unsophisticated borrowers.
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