Financial Gems for the Young and Young-at-Heart (aka Elders)

When I decided to launch the Wynn$ights blog more than five years ago, my goal was to impart the importance of saving and investing on young adults right out of high school or college with new income streams (a first real job). I do realize, however, that this is good advice for the young-at-heart also, or those who no longer stay out past midnight.

Knowing from experience that most new wage earners have very little disposable income, my challenge was to convince them that saving is an important habit to develop even when the amount saved is minuscule - that without savings, one cannot become an investor.  And without the development of an investment portfolio it can be quite difficult to enjoy a comfortable retirement later in life.

Cotton Pickin,' Eggs & Cash

I was schooled by conservative parents to become a saver at a young age (refer to my very first blog Cotton Pickin’, Eggs and Cash for all of the eggs-citing details). At the same time, I was urged by my mother to become an investor as well - in the form of a tiny but evolving savings account at a local bank. Reflecting on those lean financial times, I somehow always seemed to have a few coins to spend on Saturday afternoon Gene and Roy “oater” movies and half-price comic books. Perhaps those important parental lessons in thrift were why I was able to splurge on those "extras."

Life Lessons & Learning Experiences

Still, despite this guidance, like most young folks, the early years of my life were financially challenging (refer to Life Lessons and Learning Experiences). And you guessed it, I managed not to save and invest in a meaningful manner until my mid-30s. Nor did I become truly aware of the Amazing Power of Compounding until even later despite the years spent educating myself at institutions of higher learning and from early business experiences.  

Because I wasted 10-15 years of my early work life saving very little, and accordingly, not investing much, it seemed I had useful experiences to tell my own and other youngsters to avoid…should they choose to listen. In short, I decided to plead with them not to make the same mistakes I did by following some simple rules. The most important rule being do not lollygag about saving and investing. Each year of such procrastination will add to a pool of opportunity costs difficult to surmount in later life.

Amazing Power of Compounding

A very important component of compounding, in addition to invested dollars and the yield on those dollars, is the time factor (see The Amazing Power of Compounding). Will you have time down the road to avoid your failure to save and invest during those early years? One hopeful solution is to live a long time. However, if you enter those retirement years ill-prepared financially, time can also be an enemy, not a friend. This reminds me of Warren Buffett’s sidekick, Charlie Munger’s first rule of compounding:

Never interrupt if unnecessarily.

Retirees and Soon-to-Retirees

Speaking of living a long time, it recently dawned on me…due to some real world experiences…that there is another large category of investors who deserve attention. A significant number of today’s retirees or soon-to-retirees are actively involved in making important decisions about their finances – largely due to corporate and small employer phase-outs of guaranteed pension income plans, replacing them with 401(k) plans and such. This increased late-in-life personal activity in all types of investment activities has brought to light growing evidence of a lack of awareness of cognitive decline on the part of many aging investors.

According to studies, this lack of cognitive awareness has contributed to the loss of valuable savings through poor investment  decisions – and an increased  vulnerability to countless financial scams swirling out there.

I personally don’t feel that I’ve suffered from cognitive decline, but whether or not that’s true, I’m of the opinion that in addition to the earlier emphasis placed on educating America’s younger generations about the importance of  saving and investing, perhaps there is too little attention focused on America’s very large and vulnerable aging population. Particularly since these older generations control a huge amount of generational wealth that they rely on to fund their retirement years, and that they hope to transfer to their children and grandchildren one day.

Cognitive Deterioration Awareness

"Are Older People Aware of Their Cognitive Decline? Misperception and Financial Decision-Making" is an informative research effort by Fabrizio Mazzonna and Franco Peracchi that focuses on older folks’ perception of cognitive decline and its potential negative financial consequences. Their findings suggest that many aging individuals (certainly not me) tend to underestimate their cognitive deterioration. And those undergoing such decline are more likely to experience inadvertent decreases in financial wealth. It follows that such financial setbacks are more likely experienced by wealthier folks previously active in the stock market or other complicated investment activities.

Because codgers like me tend to live longer than those of past generations, it comes as no surprise that more of us are likely to suffer memory loss. This undiagnosed cognitive decline can easily cost affected elders' precious retirement savings through bad investments (or financial scams) as opposed to those making rational retirement portfolio strategies. Because it's a common problem, family members and friends are advised to be alert to such memory difficulties…and address them when they occur.

This can be a sticky wicket to deal with because in many cases typical memory loss associated with aging is not necessarily a serious condition such as Alzheimer’s disease. But it’s a fact that many seniors simply are unaware of their real cognitive decline (not me, in case I didn’t mention that earlier). Recognizing true cognitive decline and addressing it quickly can help families avoid disastrous potential financial distress.