FINRA Foundation Study says that Overconfidence may lead to Risky Financial Decisions.
According to a recent study, overconfidence in financial knowledge may lead to excessive financial risk taking in older age.
The study, entitled “Does Overconfidence Increase Financial Risk Taking in Older Age?” was provided by the Rush Memory and Aging Project in conjunction with the FINRA Foundation and came from over 1,200 adults between the ages of 58 and 101 from the greater Chicago area.
The subjects reportedly completed surveys related to financial decision making including tests of financial literacy and ratings of confidence in their financial knowledge.
They also reported their level of financial risk tolerance when managing their own money as well as other measures related to financial risk tolerance like scam susceptibility and financial fraud victimization, according to FINRA.
While financial literacy was lowest among the oldest adults in the study, confidence in financial knowledge was similar across ages, the study suggests.
The study reportedly subtracted literacy scores from confidence scores, to quantify each person’s level of overconfidence. “Adults who were more overconfident reported being more financial risk tolerant but were not more scam susceptible or more likely to be victimized by fraud. The same association between overconfidence and risk tolerance was found in adults without cognitive impairment and with mild cognitive impairment.”
Overall, the study reportedly suggests that overconfidence may contribute to risky financial behavior, according to FINRA.
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