Financial Decision-Making, Financial Literacy, and Cognitive Function: Evidence From the PATH Through Life Study

(1) To describe financial decision-making experienes and financial literacy, and (2) to examine associations between multiple cognitive functions and financial literacy, including whether these associations are modified by gender and education.

We analysed cross-sectional data from Wave 5 of the PATH Through Life Study, including 1036-1440 adults aged 60-66 years (mean age 62.5 years [SD 1.5]; 53% women). Subjective financial literacy was assessed using self-rated knowledge, and objective financial literacy using a PRIDIT-weighted score derived from four items. Associations between ten cognitive measures and financial literacy were examined using multivariable linear regression, adjusting for sociodemographic characteristics. Interactions with gender and education were assessed.

Overall, 69% of participants had made a major financial decision, and 22% had acted as substitute decision-makers during the previous 5-6 years. Self-rated financial literacy was high (mean 5.0 [SD 1.2] on a 7-point scale). Objective financial literacy was lower, especially for risk diversification (56% correct) and bond pricing (27% correct). Subjective financial literacy was associated only with self-reported memory impairment. Objective financial literacy was associated with all cognitive function tests except self-reported memory impairment. Associations between certain cognitive functions and objective financial literacy were weaker among participants with higher education. No gender-based interactions were observed.

Better cognitive function was associated with higher objective financial literacy, whereas subjective financial literacy showed no association with cognitive performance. These findings highlight the importance of cognitive function for financial literacy in later midlife to early older age adults.