While the link between aging and cognitive decline is quickly becoming conventional wisdom, new research underscores how this impacts the elderly in financial matters.

The academic research, which extrapolated from surveys of 3,850 people aged 60 or older, indicates that older individuals lose some of their financial literacy as they reach old age.

To make matters worse, the research showed that people also remain ever confident in their financial acumen as they grow old, complicating attempts to address their reduced money skills.

In “Old Age and the Decline in Financial Literacy,” researchers John Howe of the Univesity of Missouri and Michale Finke and Sandra Huston of Texas Tech University found that when individuals reach age 60, they start suffering declines in financial literacy of about one percent per year.

After age 60, the participants’ average financial self-confidence increased slightly, meaning that even though they might not understand financial terms or policies very well, they still believe they can make good decisions about their personal finances.

The researchers noted that households headed by people aged 60 or older hold more than half of the wealth in the U.S.

The study's participants were asked to take a short financial literacy test on basic concepts including borrowing, investing and insurance.

Cognitive decline occurs at a similar rate across all groups, including men, stockowners and college-educated respondents, according to the study. Average financial literacy scores fell by 50 percent between the ages of 65 and 85. Women, non-whites and the less-educated were more likely to be overconfident about their financial knowledge.

Older participants were more likely to own life insurance products, but were less likely to be able to answer questions about the utility of insurance than younger participants, according to the study.

Older respondents were also more likely to pay a high mortgage interest rate and were less likely to take advantage of credit card rebates.

Declines in financial literacy corresponded to lower scores on problem-solving and memory tests, according to the study, suggesting that progressive difficulty in making financial decisions could be a normal part of the aging process.

The researchers said that with appropriate planning, declines in cognition and financial literacy need not lead to worsening outcomes as investors age, but an increase in self-directed planning in vehicles like defined contribution plans and IRAs leaves many individuals vulnerable.

Programs that automatically annuitize retirement income and do not require direct management by the retiree, like Social Security, may improve aging Americans’ welfare.