The Most Important Money Decisions You'll Need to Make at Every Stage of Life
Building the roadmap to be great with money for the rest of your life
In the first two entries in the Dollars & Decades series, I reviewed why both young and older people struggle with money.
The young are at their peak cognitive functioning but lack real-world experience managing money—while the old have all the experience but have to grapple with more complex problems and declining cognitive abilities.
In today’s post, I’ll build a roadmap of many important financial decisions you will face throughout your life. The list will be in chronological order, starting with the issues most pressing for young people and ending with the financial decisions facing people in their post-retirement years.
The most important financial issues at every stage of life
The following chart is from an exceptionally well-written paper titled “Financial Decision Making across the Adult Life Span.”
Here’s how to understand what’s happening in this chart.
On the right-hand side is a measure of your age, starting with “young adulthood” at the bottom and “old age” at the top.
In the middle is a list of important financial issues. Notice that they are matched to the age most people start making these decisions. For example, paying bills on time is something you should learn as early in life as possible, while estate planning is an issue that is more pressing for older people.
The left-hand side of the chart measures three things;
How well structured each financial decision is. Are the steps needed for a successful decision obvious or not?
How complex each financial decision is. How much cognitive ability is needed to make the right decision?
How uncertain each financial decision is. Is there any way of knowing how things will turn out before taking action?
Paying your bills on time is something you need to learn early in your financial life, and it’s also well-structured, simple, and has a certain outcome. You are told how much you need to pay and when and the consequences of failing to do so.
On the other end of the spectrum, you have the issue of assessing whether you are on track for retirement. This issue is poorly structured and depends on many unknowable factors, like how long you’ll live, which makes it hard to be 100% confident if you are on track or not.
Generally speaking, financial decisions that young people need to make tend to be well-structured, simple and have easy-to-predict outcomes. While financial decisions that older people need to make tend to be poorly structured and complex, and the outcome is often unknowable—even a great decision-making process can result in a bad outcome.
That’s why what young people need most of all is financial literacy, and what older adults need is a financial advisor.
The chart above provides a helpful framework to improve financial decision-making at every age and a road map for where we go from here with the Dollars & Decades series.
Over the coming weeks and months, I’ll be compiling research on each financial issue listed above to help you improve your financial decision-making.
I’ll start in chronological order, which means the first issue we’ll discuss is paying bills on time. After that, the issues I cover in this series will quickly get increasingly complex—but don’t worry, I am here to make it all make sense.
I need your input
I am building this resource for you, and to make it as helpful as possible, I need 20 seconds of your time. Could you quickly scan the table above and let me know if there are financial issues that you need help with that, you don’t see listed?
Let me know in the comments if there’s anything missing, and I’ll be sure to add it to the list.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
Chart should also expressly address decumulation strategies, e.g., income generating strategies post the accumulation stage.
Tax returns are what gives more the most headache but it's because I do my taxes myself. It takes about a day every year. The positive is that that day's work produces $1,000+. What's not to like?