Staying sharp
Financial literacy requires the memorization of names and numbers, stimulating better brain health, according to the study.
Higher household income and financial literacy were the two main factors that were associated with people’s financial ability as they age. While many may not be able to increase their income easily, taking the time to do your own research on how to make the most out of your money could improve your ability to make sound financial decisions later in life.
Just like practicing math in school, verbally repeating financial principles can create memory pathways which help people retain information.
“Financial education may help people retain sharp decision-making abilities on the money front,” the study said.
As people age, the front region of the brain begins to shrink, which may cause people to make more mistakes with financial decisions as they become more reliant on different parts of the brain.
“They are potential markers that could show people’s increased vulnerability to scams,” Associate Professor of Psychology at Binghamton University, Ian M. McDonough said in the study. “Managing finances is so important to maintaining independence later in life.”
McDonough says its key for caregivers to monitor signs of cognitive decline that can make older folks more susceptible to scams.
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Learn MoreFinancial literacy starts early
When it comes to financial literacy, it’s best to start with the basics.
Making a customized budget is a great place to start.
You can start with calculating your net worth by adding all of your assets, including things like cash, market investments, home equity and retirement savings and subtracting that from all the debt you owe.
Next, put your monthly spending in a spreadsheet and divide the expenditures into two categories: “necessary” and “flexible.” The same goes for your debt repayments, try writing out each line of credit you pay off each month.
Now that you’ve laid everything out, you can start making decisions on your financial goals and determine how much you really need to live on.
Another important figure to calculate is how much you need to retire.
You can try using the 4% rule if you want your retirement savings to last you 30 years.
What that means is you should have enough money saved where you can withdraw 4% of your total retirement savings in your first year of retirement. Then, you withdraw the same dollar amount and adjust for inflation for the following 29 years.
Predicting future inflation rates is impossible, but you can try it out at different extremes to give yourself a good idea of how long your money may last you.
You can also try the multiply by 25 rule. Decide how much money you want to have each year in your retirement years, and then multiply that by 25. That would be your nest egg.
Getting familiar with government taxation regulations and how to invest in different types of higher-risk assets can take years of practice. And since new government savings plans can be introduced, it’s a good idea to stay up to date on what’s available to you.
There’s always more to learn, these are just a few places to start.
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