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A timeline of financial decision-making

In our 20s, we start thinking about future goals—like traveling the world, going to grad school or starting a family. But it’s also a time when people tend to have a lot of high-interest debt, including credit card debt, car loans and student loans. People between the ages of 18 and 29 have, on average, $12,871 average in debt, according to Debt.org, with the average student loan debt hovering at above $35,500.

It’s around this point some financial experts would recommend the 50-20-30 money management technique, which divides take-home pay into three categories: 50 percent for essentials such as rent, gas and groceries; 20 percent for savings and loan payments, including retirement savings; and 30 percent for non-essentials like clothes, restaurants and entertainment. It’s also a good time to start investing to take advantage of compound interest.

In our 30s and 40s, we tend to settle into our careers; we might also reach other milestones, such as getting married, having kids and buying a home. There are added expenses, such as saving for a down payment or having a kid. But it’s also a good time to ramp up your 401(k).

By the time we reach our 50s, we’ve accumulated knowledge and life experience that hopefully allows us to learn from past financial mistakes. Retirement is within reach, so it’s also an opportunity to max out savings before reaching those golden years.

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The impacts of aging on money management

Younger people have more time to make up for any bad financial decisions they make — like racking up credit card debt to go on that European vacation when they couldn’t afford rent.

But those nearing their retirement years don’t have that luxury. They may be less willing to make risky investments, but that means their returns may be lower, too. And if they underestimate their longevity, they may not have enough set aside.

However, as the earlier studies suggest, perhaps a bigger concern is cognitive decline, which could impact their ability to make savvy financial decisions.

“Older adults who experience cognitive decline often have difficulties managing their money,” according to a working paper from the University of Pennsylvania’s Pension Research Council. “Financial mistakes made by the elderly include falling victim to financial fraud, failing to plan for future expenses and forgetting to pay amounts owed.”

When it comes to smart financial decision making, age isn’t the only factor. A person’s education, financial literacy and personal experiences all play a role — but developing smart habits early in life could make that sweet spot in your 50s even sweeter.

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About the Author

Vawn Himmelsbach

Vawn Himmelsbach

Freelance Contributor

Vawn Himmelsbach is a journalist who has been covering tech, business and travel for more than two decades. Her work has been published in a variety of publications, including The Globe and Mail, Toronto Star, National Post, CBC News, ITbusiness, CAA Magazine, Zoomer, BOLD Magazine and Travelweek, among others.

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