Cognitive decline and household financial decisions at older ages

Using data from the Health and Retirement Study, we examine the association between cognition and financial outcomes among older American couples. We first investigate the relationship between couple members' cognitive ability and financial responsibility within the household. Our results suggest that differences in the level of cognitive ability play a major role in determining who is the household financial decision-maker, while changes in cognitive ability of both couple members over time only marginally modify such choice. Next, we study changes in financial wealth following pronounced declines in cognitive test scores of household members. We observe significant reductions in wealth among households whose financial decision-maker experiences such declines. Wealth reductions are less sizeable among those with pension/annuity income and receiving help with finances from their children.