Ask yourself a simple question: How old do you feel you are? Does the answer match your true age – or do you feel younger or do you feel older?

This isn’t a silly question. We have found that subjective age identity – that is how old we feel – shapes important economic behaviour such as our decision when to retire, how much we save and our risk appetite when it comes to investment. We argue that not only our true age but also our subjective age should be integrated into designing and marketing financial products and services like target date funds and pension products.

Maastricht University’s Dr Thomas Post

What is subjective age identity

Subjective age identity reflects a person’s subjective interpretation of his or her age – how old they feel they are. There are different reasons why one might feel younger or older than one’s true age.

We focus on two reasons in our research. First, ability: I might feel, for example, older, because my physical or cognitive abilities are worse than what they are supposed to be (or used to be).

Second, social construction and preferences: I might feel, for example, younger, because I am surrounded by young people in my day to day activities, do things that young people do like sport, or I might deny my true age because of real or perceived old age prejudices.

Existing studies have found that subjective age identity predicts many variables and behaviours such as physiological and cognitive functioning, dementia, performance at the workplace, and shopping preferences. To take an illustrative example, I might deny using the convenience of meals-on-wheels services because that is something that old people do, and I feel young.

Subjective age can be measured surprisingly simply – often it is just a single survey question that a person is being asked to answer: “Many people feel older or younger than they actually are. What age do you feel?”

How subjective age identity shapes economic behaviours

For our study we analysed survey responses from a representative U.S. household survey data set (the Health and Retirement Study) covering in multiple waves the years 2008 to 2014 (in total 9,284 respondents aged between 45 to 90 years). First we found that the majority of respondents (75 per cent) felt younger than their true age, 15 per cent felt no difference, and 10 per cent felt older. On average, respondents felt 10 years younger. Factors that contribute to feeling younger are, for example, optimism and life satisfaction, while health problems predict the opposite.

When we analysed the impact of this on economic decisions we found that people who feel young and who are still working expect to continue being employed in the years ahead rather than retiring; whilst those that are currently unemployed have a higher likelihood of returning to employment.

These effects are economically important: For example, feeling one standard deviation younger than the sample average (that is, 11 years) predicts a 1.1 per cent higher likelihood to be employed in a subsequent Health and Retirement Study wave. It seems small, but given the overall lower employment in the age bracket of our sample this number means a 21 per cent increase compared to the average likelihood.

We also found that respondents’ annual savings are impacted by their subjective age identity – although the effects are less straight forward. For those who feel younger because of higher physical or cognitive ability, we found an increase in savings while for those who feel younger because of social construction and preferences we found lower savings.

One interpretation of these findings is that those with a higher ability seem to plan for a longer life span, while those who want to mimic young behaviours to match their identity, engage in behaviours that cost money (think shopping and travelling). We found similar results when we looked at portfolio decisions. Subjective age matters for the share of assets invested riskily (for example in stocks), but again the reason for feeling younger predicts different adaptions of behaviour.

Implications for investment products and marketing

So, an answer to just a single question about one’s subjective age identity helps predict a wide range of economic preferences. How long people stay employed, when they might retire, how much they save and how they invest.

Our findings challenge the economic policies, financial advice, product design and marketing strategies that are based on chronological age. We think that subjective age should also be taken into account to provide products and services that match people’s preferences.

What makes subjective age identity particularly interesting is not only that it can be easily measured. It is also very stable across time. So, in the world of saving and investing where we need to make plans and decisions many years, if not decades, ahead, subjective age can be used to fine tune products and services.

What should be the target date of a target date fund, for example? We think that chronological age should provide a reference point from which services and products for individual clients are adjusted and tailored to match their subjective age identity. Likewise, a pension fund when defining the investment strategy for its portfolio might tailor the choice to match its specific member population’s subjective age identity. It could also help better predict decisions like when to retire, or if members will choose higher payouts for the first retirement years.

Dr Thomas Post is assistant professor of finance at Open University and Maastricht University. His research covers behavioural finance, household finance, and pension finance.

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