- Joined
- Sep 25, 2007
- Messages
- 201
Hi all,
This article is from the current issue of Canadian Business Magazine. I don`t imagine that the results and proposed solytion will be all that popular. Excerpts:
Economists from Harvard University, New York University, and the Federal Reserve Board have concluded that financial decision-making skills begin to decline in middle age. Or, to be more precise, at 53.3 years old — when we`ve developed a wealth of financial experience, and still have most of our faculties intact.
This presents a serious problem, given North America`s rapidly aging population — enough of one, in fact, that the authors suggest a government licensing system be instituted to ensure older adults have a base level of financial understanding before they are permitted to invest.
"A lot of members of the older population are making these financial decisions on their own," and they`re more likely to be bad ones, says Sumit Agarwal, senior financial economist with the Federal Reserve Bank of Chicago, and one of the authors of the study.
One way to ensure a better informed populace, Agarwal and his co-authors suggest, is to mandate a government-administered financial literacy test before, say, getting a mortgage or committing to a major investment. In the same way that some jurisdictions retest older drivers, people could be required to pass the test again after a certain age.
Financial licensing would not only help to prevent people from harming themselves, but also society at large. "Financial mistakes will potentially be dealt with by the taxpayer," Lusardi says. Consider the number of Americans who took out sub-prime mortgages, and the chaos triggered around the world when they could no longer make payments. "Nobody forced anybody to do anything," Alesina says, "but the investor needed to be more attentive," adding a licensing process could have at least equipped people with basic knowledge about mortgages.
Nevertheless, Lusardi maintains financial licensing has promise for the young and old alike. It won`t turn us all into investment sages like Kahn, but it could make us a little wiser. "Now that we`ve seen the tragedy of financial mistakes," she says, "this paternalism just looks like such a low cost to pay."
http://www.canadianbusiness.com/after_hour...207_10022_10022
Keith
This article is from the current issue of Canadian Business Magazine. I don`t imagine that the results and proposed solytion will be all that popular. Excerpts:
Economists from Harvard University, New York University, and the Federal Reserve Board have concluded that financial decision-making skills begin to decline in middle age. Or, to be more precise, at 53.3 years old — when we`ve developed a wealth of financial experience, and still have most of our faculties intact.
This presents a serious problem, given North America`s rapidly aging population — enough of one, in fact, that the authors suggest a government licensing system be instituted to ensure older adults have a base level of financial understanding before they are permitted to invest.
"A lot of members of the older population are making these financial decisions on their own," and they`re more likely to be bad ones, says Sumit Agarwal, senior financial economist with the Federal Reserve Bank of Chicago, and one of the authors of the study.
One way to ensure a better informed populace, Agarwal and his co-authors suggest, is to mandate a government-administered financial literacy test before, say, getting a mortgage or committing to a major investment. In the same way that some jurisdictions retest older drivers, people could be required to pass the test again after a certain age.
Financial licensing would not only help to prevent people from harming themselves, but also society at large. "Financial mistakes will potentially be dealt with by the taxpayer," Lusardi says. Consider the number of Americans who took out sub-prime mortgages, and the chaos triggered around the world when they could no longer make payments. "Nobody forced anybody to do anything," Alesina says, "but the investor needed to be more attentive," adding a licensing process could have at least equipped people with basic knowledge about mortgages.
Nevertheless, Lusardi maintains financial licensing has promise for the young and old alike. It won`t turn us all into investment sages like Kahn, but it could make us a little wiser. "Now that we`ve seen the tragedy of financial mistakes," she says, "this paternalism just looks like such a low cost to pay."
http://www.canadianbusiness.com/after_hour...207_10022_10022
Keith