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The age when we make the smartest financial decisions

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There's a Number That Will Likely Increase Your Bank Account

In case you're wondering why you can't grow your income or why you're wasting that much money is because you probably haven't reached the age of 53 or 54 yet.

According to experts, these two ages are considered the best for making smart financial decisions.

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Around this age, people have accumulated knowledge and experience about money, spending, and saving, but they have not begun to lose basic cognitive skills. It's also about the age when adults make the fewest financial mistakes, when it comes to credit card use, interest rates, and fees.

Knowing what drives financial strength in your 50s is valuable. Younger adults can delve into basics like inflation and interest rates to compensate for a lack of experience, and those who are older can work to maintain their skills.

“We build on experience”
“As we get older, we seem to rely more on past experience, experts and intuitive knowledge about which products or strategies are best,” Rafal Chomik, an Australian economist, tells the Wall Street Journal.

Chomik led a 2022 study that examined “financial intelligence,” which is the ability to understand financial information and apply it to managing personal finances. Financial intelligence typically peaks at age 54 and declines thereafter, according to the study.

The study measured financial intelligence using questions about inflation, interest rates and diversification. One of the questions was: If in five years, your income has doubled and prices have doubled, will you be able to buy (A) less, (B) the same, (C) more than today. (Answer: B).

People can and do make good financial decisions in their 20s to 40s, as well as in their 60s and 70s. Chomik, who is 45, says some of his best financial decisions came earlier in life.

Age Differences
Making financial decisions requires a combination of reasoning skills that vary by age.

Those in their 20s are better at absorbing and processing new information and crunching numbers, but they don't have as much life experience that obviously acquired growing up.

Beverly Miller, a financial expert who often works with people in debt, says she did most things before she was 50, avoiding credit card debt, paying off car loans and paying off a 30-year mortgage in 12 years.

But he didn't invest as wisely as he could have. For example, she moved money into a retirement savings account from growth funds and into fixed income funds.

“We let changes in the market scare us and we made changes that we shouldn't have,” explains Miller, 65.

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Miller says she and her husband could have made more money if they had left it in growth funds. Likewise, he invested in rental properties, which he thought could be an easy source of income, but they weren't.

“The Age of Reason”
People make financial mistakes at any age, but they made fewer mistakes at age 53, according to financial researchers. In one study, economists looked at the financial choices adults made in 10 financial areas, including mortgages and credit cards, and how those decisions affected fees and interest payments.

The two the latter, in all 10 sectors, are at their lowest levels around age 53, according to a 2009 study in the Brookings Papers on Economic Activity. This age was referred to as the “age of reason,” or the point at which economic mistakes are minimized. A financial mistake would include overestimating the value of a house, for example.

At age 53, “people have been in the financial markets for years and know how to look for the right financial product and minimize fees and payouts,” says Sumit Agarwal, professor of economics at the National University of Singapore and author of study, who turned 53 this year.

Underestimating life expectancy
One financial mistake 50-year-olds tend to make is underestimating their life expectancy, which can lead to poor planning decisions about retirement.

A typical 50-year-old expects to live until age 76, when actuarial estimates show that person living another decade to age 86, according to his study Chomik, which reviewed surveys in Australia.

A 2020 study in the US found that 28% of adults aged 50 and over underestimated their life expectancy by at least five years.

Source: 24h.com.cy

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