Financial Savvy Peaks at Age 53

According to research by four economists, reported in yesterday's Wall Street Journal, the ability to make sound decisions about personal finance seems to peak around age 53.

The middle-aged strike better deals on home-equity loans. Even by age 46, those signing up for credit cards offering "Zero percent on transferred balances for six months!" may be savvy enough to realize they can't use the new card for six months.

(Reason: Payments for new charges on the card would reduce the zero-rate transferred balance, not the new, high-rate charges.)

Older people in the study, like the young, seemed less savvy. Question is, can you compare an 80-year-old who has to take out a home-equity loan (presumably without the ability to pay it back from earned income) with a garden-variety, middle-aged home-equity borrower?

If age 53 or thereabouts is the age of reason for managing credit, could it also be the age of reason for investors? Does the age of reason last longer for investors than for debtors? The Journal asked three distinguished oldsters.

Gerard Roche, 75, says he hired an investment adviser soon after turning 50 because "my cognitive skills weren't as sharp or intense." Mr. Roche also implies that he doesn't worry much about his portfolio's performance. (Clone that man! He's the perfect wealth-management client.)

Raymond Troubh, 80, disagreed. "Experience is a far better teacher than relative youth. . . ."

John Bogle, Vanguard's co-founder, also feels he's as sharp as ever. Investing is different from dealing with personal credit, Bogle suggests. Investing you learn from hard experience. Dealing with credit requires the ability to uncover a series of new and hidden hazards. (When everybody catches on to the zero-rate-on-transfers scam, card issuers will move on to some intricate new ploy.)

Support for the notion that experienced investors don't outlive the age of reason comes from Northern Trust's Wealth in America 2007. Somewhere around age 53, active investors tend to settle down and become buy-and-holders. Even in old age, they probably don't return to active trading.