Financial gerontology

Financial Gerontology is a multidisciplinary field of study encompassing both academic and professional education, that integrates research on aging and human development with the concerns of finance and business. Following from its roots in social gerontology, financial gerontology is not simply the study of old people but emphasizes the multiple processes of aging. In particular, research and teaching in financial gerontology draws upon the four kinds or four lenses through which aging and finance can be viewed: population aging, individual aging, family aging, and generational aging.^[1] The field. While it is not always true that "demography is destiny," demographic concepts, issues, and data play a substantial role in understanding the dynamics of financial gerontology. For example, through the lens of population aging, demography identifies the number of persons of different ages in cities and countries—and at multiple points in time. Through the lens of individual aging, demography notes changes, typically improvements in human longevity. Beginning in its founding years in the beginning of the 21st century, one primary interest of the field has been on the baby boomers and their relationships with their parents. The impact of these two kinds of aging on finance are reasonably apparent. The large and increasing number of older persons population aging in a society, however "old age" is defined, and the longer each of those persons lives [individual aging], the greater the impact on a society's pattern of retirement, public and private pension systems, health, health care, and the personal and societal financing of health care. The focus on boomers illustrates the other two lenses or "kinds" of aging. How boomers deal with the social, emotional, and financial aspects of their parents' aging is a central aspect of family aging. And how boomers may differ from their parents born and raised twenty to forty years earlier, and differ from their Generation X and Millennial children and grandchildren, are substantial aspects of generational aging.

Origins of Financial Gerontology

The origins of financial gerontology reflect the vision of two business professionals, Joseph Boettner, a successful insurance salesman and entrepreneur, and Davis Gregg, a successful business educator and administrator. Boettner was born in 1903 and left West Philadelphia High School to work in the city's booming insurance industry. Building from a successful career in sales he purchased the failing Philadelphia Life Insurance Company (for $1 per share), and established it as a successful company. Boettner's post-high school education was with the American College of Life Underwriters, then an insurance education program of the University of Pennsylvania's Wharton School of Business & Finance; he earned his Chartered Life Underwriter (CLU) designation in 1934. Born in 1918, Gregg graduated from the University of Texas and earned his PhD from the University of Pennsylvania in 1947, where he studied under the legendary professor of insurance Solomon Huebner, the founder of the American College of Life Underwriters and considered by many to be the "father of insurance education"^[2] Gregg was on the faculty of Stanford University when Huebner asked him to come to the insurance college in Philadelphia for a short time. The "short time" became four decades including thirty years (1954 to 1983) as the college's president.

Combining his wealth and continuing interest in financial education, Boettner made several investments in higher education, including endowing academic chairs primarily in the realm of life insurance programs. As both his business perspectives and his experience with personal aging evolved, however, his views about the educational needs of the insurance industry also changed. Although his own resources allowed him to respond successfully to the financial challenges of aging, he became increasingly concerned about how the average person can deal with aging and, of equal significance, how educational programs could be created to respond to the needs and concerns of aging persons. Over the years Gregg's intellectual experience as dean and president encouraged him to expand the college's distance education curriculum beyond the CLU designation which focused substantially on life insurance. Under his leadership the college developed a second professional designation, the Chartered Financial Consultant (ChFC) whose approach included financial planning courses beyond life insuranceOver .

By the 1980s Boettner's concerns about personal aging and financial education began to merge with Gregg's views on the need for more comprehensive professional education in the expanding field of financial services. A result of these joint concerns was the concept and a plan, for a new research institute that would focus on the interconnections among social gerontology and personal finance. With a small gift from Boettner, Gregg convened a study committee of nationally known gerontologists which, after two years of assessment, agreed on four organizing principles: (1) that there was in fact a need for specialized research that integrates gerontology and financial planning; (2) that a social gerontology research center could succeed at a small specialized business school; (3) that the permanent director of the institute should be an experienced gerontologist because the financial side of the relationship would be provided by the business school's faculty; and (4) that the new institute would be communicating gerontological concerns to financial professionals and financial concerns to gerontologists.

The Boettner Institute of Financial Gerontology

On July 4, 1986 American College established the Boettner Research Institute under Gregg's supervision. Its first permanent director was Dr. Neal E. Cutler, a professor of political science and gerontology, recruited in 1989 from the University of Southern California's Andrus Gerontology Center. A challenge of the new leadership team was to create a more content-descriptive name for the institute. A pensions or retirement institute was considered, but this was somewhat narrower than the mandate of the new institute; further, the Wharton School at the nearby University of Pennsylvania already had a well-established Pensions Research Council. More critically, the new institute was to be unique in emphasizing the contributions of gerontology to a broad range of academic fields and financial professionals. Fortunately, as models there are several well-recognized gerontological interdisciplinary sub-fields, including biological gerontology, social gerontology, occupational gerontology, and recreational gerontology; and the phrase "financial gerontology" was starting to be seen in professional publications.^[3] Consequently, in 1990 "Boettner Institute of Financial Gerontology" was chosen as the official name in order both to create new sub-fields in gerontology and in finance, and to help communicate the institute's scope of academic and professional education and research.

The initial professional and public recognition of the significance of financial gerontology was substantial, and to some extent exceeded the expectations of its organizers and advisers. In response, a broader set of academic supports than originally planned was identified. In 1992 the Boettner Institute of Financial Gerontology became chartered as a nonprofit charitable educational corporation with an independently appointed board of trustees of prominent business and gerontology academics and practitioners. The same year, the trustees voted to move the institute from The American College and accept an invitation to become affiliated with the University of Pennsylvania School of Arts & Sciences.^[4] In order to establish that the foundations of financial gerontology were to be learn from and speak to both gerontology and financial services, the Boettner Institute organized a series of published lectures given by renown experts in the "two sides" of financial gerontology. The inaugural lecture was given in 1997 by Dr. George L. Maddox, Director of the Duke University Center for the Study of Aging and Human Development: "Age and Well-Being." Other lectures included: Dr. William C. Greenough, CEO of TIAA-CREF and developer of the variable-annuity stock fund: "Critical Policy Issues for Pensions" (1989). Dr. Matilda White Riley, Director of the Office of Social and Behavioral Science, National Institute of Aging: "Aging in the Twenty-first Century" (1990). Dr. Davis W. Gregg, Founding Director of the Boettner Institute: "The Human Wealth Span: A Life Span View of Financial Well-Being" (1992). Dr. Linda K. George, Professor of Psychology and Neuroscience, Duke University: Financial Security in Later Life: The Subjective Side" (1993). Dr. James E. Birren, psychologist and founding director of the USC Andrus Gerontology Center: "Information and Consumer Decisions-Making: Maintaining Resources and Independence"(1994). Dallas L. Salisbury, CEO of the Employee Benefit Research Institute: "Recent Trends in Pensions, Benefits, and Retirement: In-House Research" (1995).

In keeping with its established academic naming practices, the University of Pennsylvania renamed the Institute as the Boettner Center of Financial Gerontology. In 2003 the Center was moved into the university's Wharton School as the Boettner Center for Pensions and Retirement Research affiliated with the business school's Pension Research Council, under the direction of Dr. Olivia S. Mitchell. The Wharton School is also home to one of the two (see below) Boettner-funded endowed chairs in financial gerontology.

Financial Gerontology as Academic Teaching and Research

The Human Wealth Span

Early financial gerontology research focused on the interaction of (and longitudinal trends in) in middle-aging and older-aging, and their combined impact on savings, retirement, health care, and long-term care. Research on aging and money often juxtaposes old age with the adequacy of financial resources (pensions, Social Security, and a variety of savings and investment approaches, often referred to as the "three legged stool",^[5] to support quality of personal and family later life. The integration of middle age as an essential dimension of financial gerontology reflected Gregg's and Cutler's conceptualization of the "Human Wealth Span" introduced in 1991-1992^[6][7] As Gregg noted in the 1992 Boettner Lecture, the Human Wealth Span "mirrors" the better known Human Life Span concept which speaks not only patterns of maturation and development, but also to identifiable stages in development.

An especially important additional link in the etiology of the Wealth Span is the emphasis on the Health Span in Rowe and Kahn's conceptualization of successful aging, especially the connection between health span stages, health behavior and, thereby, "successful aging." In terms of stages, it is apparent that health behavior choices made earlier affect health status and outcomes later in life. Rowe and Kahn^[8] emphasize in this regard, however, that while it is better to start early and always have good health behaviors, even starting such behaviors later life can affect and improve health. For example, cessation of smoking or "pumping iron" in one's 60s or 70s can have beneficial effects. Drawing on these insights, the wealth span representation of the life span in financial terms emphasizes two stages: the accumulation stage and the expenditure stage, which are somewhat correlated with developmental stages. Traditionally, people accumulate wealth in their younger, especially middle-aged, years, and spend that wealth in their later retirement years. Clearly, as Modigliani's life-cycle saving-spending hypothesis illustrates, this is a purposeful simplification of a complex life span dynamic; many people continue to (work and) accumulate in their older years just as, of course, younger and middle-aged persons spend during the accumulation years of their wealth span.

Changes in Balance

Beyond a concern with the stages of accumulation and expenditure, the wealth span model offers two valuable tools of analysis useful for both academic research and financial practice: (1) changes in the balance between the accumulation stage and the expenditure stage, and (2) changes in the complexity of each of the two stages.^[9] Balance here refers to the number of years in each of these two stages. The usual assumption for financial planning and financial well-being in later life is that the accumulation years provide the wealth for the expenditure years. Basically (but more complex in real life) the event or act of retirement is the behavioral fulcrum that conceptually divides an individual's wealth span into the accumulation years vs. the expenditure years. Compared to the first decades of the twentieth century when many men and women dropped out of high school or earlier to work, since the 1950s most Americans stay in school (high school, college, graduate school) longer than before, thereby reducing the number of years in accumulation stage. Similarly, the number of accumulation years is reduced due to early retirement. As the history of work and retirement during the past seventy years or so demonstrates, patterns of retirement in the U.S. have shifted, with the strong preferences for early retirement seen during the second half of the 20th century now easing as increasing numbers of older workers (older boomers) remain in or return to the labor force.^[10] By itself a shorter accumulation stage tells only part of the story. At the same time, across the twentieth century life expectancy has increased substantially resulting in a longer expenditure stage. From the perspective of financial gerontology such a shift means that people have fewer years to accumulate and what the accumulate has to last for a longer number of expenditure years. Of course, the fulcrum can and has been changing as, in recent years, fewer middle-age and older workers are opting for early retirement. Thus, while it is unlikely that older-age life expectancy will dramatically decline to shorten the expenditure stage, social policy and individual choice do influence the number of years in the accumulation stage. The wealth span model simply provides context, identifies the components, and directs attention to the dynamic interaction between and among them.

Changes in Complexity

During the same decades in which the balance between the number of years between the two stages have been changing, the complexity of the accumulation stage and the expenditure stage also have been increasing. In particular, the well-documented improvements in life expectancy in the United States, including older-age life expectancy as well as life expectancy at birth, increases the complexity of the wealth span, both accumulation opportunities and expenditure responsibilities, in at least three substantial ways: health care and health care finance, pensions and retirement finance, and family-financial practices. First, the more direct impact of greater longevity on finance focuses on health—including both investing in personal health behaviors that anticipate old-age health issues, and the financing of health care in later life. In the U.S. this includes an accumulation stage planning focus on insurance, including private health care insurance, Medicare, and the emergence of long-term care and long-term care insurance. With increasing societal and individual health care costs, both the accumulation stage and expenditure stage of the wealth span have become more complex.

A second cluster of expanded wealth span complexities centers on the substantial changes in the U.S. pension or "retirement income" system. In addition to the national Social Security system which provides some basic retirement income for almost all workers, almost half (46%) of all private sector workers also have an employer-sponsored pension. The increasing wealth span complexity, however, is found in the dramatic change in the kind of pensions held by American workers: Defined Benefit (DB plans) vs. Defined Contribution (DC plans) pension schemes. While the discussion of these types of pensions is discussed in detail elsewhere, it is the fundamental difference in what is "defined"—that is, what is "guaranteed" to the worker in the expenditure stage—that produces the substantial increases in complexity. Conceptually, DB plans define, or largely guarantee, the number of dollars the worker will receive after retirement. It is the employer primarily who is responsible for contributing the necessary funds into the plan (sometimes but not always with contributions from the employee). In other words, it is the "output" of pension money that is defined or guaranteed. By contrast, in DC plans, it is only the "input" of contributions into the pension plan that is defined or guaranteed in advance. In many DC plans the employee contributes a specified amount (or percentage) and the employer matches the amount; sometimes only the employee or only the employer make the contributions. In all these cases, however, the later "output" of money to the retiree is based on how well, how successful, the contributed funds have been invested. The magnitude of changes in wealth span complexity precipitated by the shift from Defined Benefit to Defined Contribution plans is illustrated by the clarity of the shift from 1979 to 2013, documented by the U.S. Pension Benefit Guaranty Corporation and reported by the Employee Benefit Research Institute:^[11] in 1979 28% of private sector workers had a DB pension and only 7% had a DC pension (10% had both); by 2013, only 2% had a DB pension and 33% had a DC pension (11% had both).

A separate but intertwined expenditure issue focuses on family aging—the degree to which longevity has changed the age structure of the family with substantial implications for the financial relationships between and among family members. When we say that "people are living longer" we are also saying that parents are living longer. The 1980s concept of the sandwich generation^[12] focused on forty-year-olds (usually women) simultaneously taking care of their sixty-five-year old parents and their babies and toddlers. Greater longevity is accompanied by the emergence, however, of the senior sandwich generation in which sixty-year-olds are now the generation in the middle taking care (socially and financially) of their ninety-year old parents alongside caring for their teenage and young-adult children.^[13][14] These demographically new "senior sandwich" responsibilities of middle-agers can have substantial impact on their expenditure stage years, as they are now caring for elderly parents just as they are planning for their own later life. Simultaneously, anticipation of these responsibilities can also add complexity to their accumulation stage planning. While the wealth span model primarily is an individual-level construct, financing health care and middle-age care for elderly parents are issues of both macro financial-social policy and individual behavior.

Over the past century substantial changes in complexity have affected both the accumulation and expenditure stages of the wealth span. The increased complexity of the expenditure is dramatically evidenced by the fundamental demographic facts of increasing life expectancy which, at base, means spending over a longer number of years. Clearly the largest set of complexities precipitated by greater longevity are seen in older age health, scientific and cultural responses to health and aging, and of course the personal and societal financing of health care—including health care insurance, Medicare in particular, and the emergence of long-term care, including long-term care insurance, as a somewhat separable cluster of financial and political issues. Further exacerbating this complexity, the senior sandwich generation responsibilities noted above extend the personal and financial impact of older-age longevity to the middle-age children of elderly parents. For example, In 1900 only 39 percent of persons age 50 had one surviving parent, rising to 80 percent by 2000. Further, in 1900 only 7 percent of 60-year olds had even one parent alive, rising to 49 percent by 2000.^[15]

The Endowed Chairs in Financial Gerontology

Joseph E. Boettner, the successful high school educated insurance executive, directed a substantial portion of his wealth to higher education. His earlier gifts reflected his close involvement with the administration and finance of life insurance, especially as a central element in estate planning. With his support, in 1966 Temple University established The Joseph E. Boettner Chair of Risk Management and Insurance. The endowment currently supports not only a distinguished professorship but also scholarships for students seeking the MBA degree. Over the decades during which he worked with his colleague and great friend Dr. Davis Gregg (he called Gregg his "little brother") Boettner came to publicly recognize the importance of creating stronger linkages among life insurance, financial planning, and the science of gerontology. Together Boettner and Gregg also acknowledged that the emerging field of Financial Gerontology would develop best through both a research agenda (i.e., the Boettner Institute) and university programs that support both academic and professional education.

Since 1975 Boettner had been a Trustee of Widener University in Chester, Pennsylvania, outside Philadelphia. In addition to academic programs he supported development of the campus including a gift that produced Boettner Hall, an undergraduate apartment residence. It was agreed that the new Boettner Chair chair would be located at Widener. On October 29, 1993, Boettner's "little brother" (twenty years his junior) passed away. Respecting Boettner's wishes the new Widener chair was named the Boettner-Gregg Chair in Financial Gerontology. Also with Widener's support, in 1994 Dr. Neal Cutler, who had been Director of the Boettner Center at Penn, was named as the first holder of the Boettner-Gregg Chair. Joseph Boettner died on October 27, 1994.

The Chair at Widener continues as part of the School of Business Administration, currently known as the Boettner Endowed Professor in Financial Planning, held by Kenn B. Tacchino, a professor of taxation and financial planning. As mentioned earlier, since 1992 the Boettner Center of Financial Gerontology has been part of the Wharton School at the University of Pennsylvania. In addition to the Center, the Boettner resources now support a Wharton professorship. It was first known there as the Joseph E. and Ruth E. Boettner Professor of Financial Gerontology, held by Dr. Beth J. Soldo, a demographer and sociologist who was also Director of the Boettner Center. It is currently known as the Boettner Professorship, held by Dr. Kent Smetters, a professor of business economics in the Wharton School Department of Business Economics and Public Policy.

The Emerging Literature of Financial Gerontology

1992 Aging, Money, and Life Satisfaction: Aspects of Financial Gerontology", which includes the early Boettner Lectures Note the wealth span focus discussed in Davis Gregg's Boettner Lecture, drawn from Nobel prize-winning economist Franco Modigliani's life cycle saving-spending hypothesis.

1996 Vitt's Encyclopedia of Financial Gerontology and its dozens and dozens of short, specific articles

2002 Advising Mature Clients: The New Science of Wealth Span Planning (Cutler)

And also the Boettner Institute lecture series (published papers) including both academics and financial service professionals; herein name.... - articles in scholarly journals

Financial Gerontology as Professional Education

The Bi-monthly Column

-Started in 1990; first column by Davis Gregg, Human Wealth Span -articles by Cutler (retired from the column with the January 2016 publication), Dr Sandra Timmermann, Dr. Janice Wassel, Dr. John Migliaccio

The American Institute of Financial Gerontology (AIFG)

Established 2002. www.aifg.org Registered Financial Gerontologist Foundations of Financial Gerontology Core Courses and Electives; academic and practitioner faculty

International Financial Gerontology

- Israeli Institute of Financial Gerontology (IIFG); for about 4–5 years, starting 2003 - Korean Institute of Financial Gerontology (KIFG), ongoing since 2010 - Research Center in Financial Gerontology, Japan

References

• Met Life - Financial Gerontology