08/14/2016
Study: Patience is the Secret to Wealth and Good Health

Study: Patience is the Secret to Wealth and Good Health

We know patience is a virtue. It might also be good for your health!

According to a new study comparing elderly Americans’ personal characteristics and lifetime outcomes with their willingness to delay financial gratification, patient people tend to grow richer and healthier than their more impatient peers.

The study was conducted by Olivia Mitchell, a professor of risk at the Wharton School, and David Huffman of the University of Pittsburgh.

The Study
The primary question asked of the 70+ year-olds was relatively straightforward: How much money would you need in a year’s time instead of receiving $100 today?

Older people are apparently rather impatient. Over half of the nearly 600 people surveyed responded more than $160 to wait a year, and quite a few – mainly the very old – more than $200.

The Results
Their average discount rate, the implied rate of interest rendering them indifferent to waiting or not waiting, was an enormous 54%, about twice as high as studies found for younger and middle-aged people.

The results aren’t entirely surprising, as someone with only five years to live would have much less incentive to make a longer-term sacrifice. Respondents with dementia or Alzheimer’s revealed levels of impatience 35% higher than the average. For those with cancer or heart conditions, levels were 13% higher.

It turns out that patience boosts wealth by much more than marriage status or religion. Respondents with discount rates greater than one standard deviation above the sample’s average had 29% less net wealth, equating to a loss of $130,000. After controlling for religion, income, race, gender, optimism, and education, impatient people were more likely to smoke, drink excessively, and miss flu shots and medical examinations.

Implications and Conclusions
The authors of the study concluded that people who place less emphasis on the future might make decisions pre- and post-retirement that expose them and their families to greater amounts of risk.

According to Ms. Mitchell, they may be less likely to have discussions with their children about the distribution of assets, long-term care insurance, power of attorney, and end-of-life medical care costs. Whether or not patience is something people are born with is an interesting and unstudied question, she says, but in her view financial literacy is, in fact, something that can be taught.

The global shift from publicly funded benefit plans to individual, privately managed retirement accounts may present problems if older people run down their savings too soon or invest too little in riskier equities, which could have a greater long-run payoff.

The authors also conclude that the motives behind purchases of financial assets, as well as the mechanisms determining interest rates, are not yet fully understood.

Adequate patience and having an understanding the marketplace are necessary to make informed decisions about your savings and your future. With OptiFour Integrated Wealth Management, you gain access to unique analysis and financial planning, an extensive suite of investment and risk products, on-demand and third-party resources and sophisticated delivery.

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