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Financially literate older Americans are less anxious about money

Kelly Dilworth

Despite decades of life experience, many retirees report feeling anxious as they grow older. Their finances are often tighter and less predictable, their days less structured and their health getting more fragile, making the future feel increasingly less certain.

Some seniors, however, appear to weather the changes of retirement better than others. Experts aren’t exactly sure why that is, but new research suggests that higher levels of financial literacy could play a role in helping some older Americans cope with aging better.

A new study published in the Review of Economics of the Household and based on U.S. survey data finds that people who know more about money – and act on that knowledge by making smarter financial decisions – tend to be more financially self-confident and have a higher tolerance for uncertainty and risk as they age.

More financial literacy, less anxiety about money

These older Americans who are more knowledgeable about their finances also tend to be less anxious about growing older, in part because they are often better off financially and have set aside resources (such as insurance and assets) that help reduce their worries about the future.

“Financially literate people are more capable of accumulating assets through which they reduce old age anxiety,” researchers wrote in the report.

Those with low levels of financial literacy, by contrast, tend to make poorer decisions as younger adults – such as saving less or accumulating too much debt – that affect them well into retirement, making their financial lives more stressful.

The researchers analyzed results of a survey about how anxious people felt about life after the age of 65. Respondents were asked to consider their finances, health, housing situations, family life and other issues. The researchers also looked at how financially literate people were and how good they were with numbers.

The study’s authors weren’t able to establish a direct link between financial literacy and anxiety, but found evidence that knowing more about money and credit appears to indirectly lower anxiety by giving them the tools and confidence they need to improve their financial situations and solve financial challenges.

“Although health, shelter and livelihood have no direct relevance to financial literacy, people can avail themselves of better health care, shelter and livelihood in old age through the enhanced financial capacity gained by financial literacy,” researchers wrote. That, in turn, can “reduce anxiety about life in old age.”

In other words, financial literacy gives you a roadmap you can use to navigate your life more smoothly.

Financial literacy gives you a greater sense of control

The study’s findings underscore just how much people lose when they go through life financially illiterate.

Often, when people talk about financial literacy, they are referring to children and young adults who are just starting to build a relationship with money. But the negative impact of not knowing enough about money to make the best possible decisions can haunt you all your life.

In my experience, one of the most effective ways to manage my anxiety is to proactively deal with problems that are causing me to fret and take concrete steps that help push me forward and enhance my sense of control.

Learning more about my finances and what I can potentially do to make my life better not only helps me make smarter decisions, it also helps me feel less scared of the unknown.

Act now to improve your financial future

The lesson of the study: You can take steps now to boost your financial knowledge and increase your overall wealth.

Beef up your knowledge of financial concepts and products so you’re more aware of all that is available to you and what you can do to benefit your bank account.

Doing so may set you up for a happier and emotionally healthier retirement, and it could also make you feel better and less anxious today.

See related: How financial well-being and physical health are linkedPoll: 2 in 5 Americans lose sleep over health care costsWhy schools should teach financial literacy

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