Institutional Affiliation: Darla Moore School of Business, University of South Carolina
|How Cognitive Ability and Financial Literacy Shape the Demand for Financial Advice at Older Ages|
with Raimond Maurer, Olivia S. Mitchell: w25750
We investigate how cognitive ability and financial literacy shape older Americans’ demand for financial advice using an experimental module in the 2016 Health and Retirement Study. We show that cognitive ability and financial literacy strongly improve the quality, but not the quantity, of financial advice sought. Most importantly, the financially literate and more cognitively able tend to seek financial help from professionals rather than family members, and they are less likely to accept so-called ‘free’ financial advice that may entail conflicts of interest. Nevertheless, those with higher cognitive function also tend to distrust financial advisors, leading them to eschew their services.
|Time is Money: Life Cycle Rational Inertia and Delegation of Investment Management|
with Raimond Maurer, Olivia S. Mitchell: w19732
This paper incorporates two empirically-grounded insights into a dynamic life cycle portfolio choice model: the fact that investors forego the opportunity to accumulate job-specific skills when they spend time managing their own money, and the observation that efficiency in financial decision making varies with age. Our calibrated model demonstrates that both factors generate sensible portfolio inactivity patterns consistent with empirical evidence. We also analyze how people optimally choose between actively managing their assets versus delegating the task to financial advisors. Delegation proves valuable to both the young and the old. Our calibrated model quantifies welfare gains from including investment time and money costs as well as delegation in a life cycle setting.
Published: Hugh Hoikwang Kim & Raimond Maurer & Olivia S. Mitchell, 2016. "Time is money: Rational life cycle inertia and the delegation of investment management," Journal of Financial Economics, vol 121(2), pages 427-447.