Financial gerontology

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." 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 at Penn State University and Temple University, 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 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. Gregg's intellectual experience as the administrator of the American College of Life Underwriters encouraged him to expand the institutions education beyond the CLU designation which focuses substantially on life insurance. Under his leadership the college developed a second professional designation, the Chartered Financial Consultant (ChFC) whose approach included a wider range of financial planning courses.

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, a later a plan, for a new research institute that would focus on the interconnections among personal finance and social gerontology. 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 (Center) of Financial Gerontology

On July 4, 1986 The American College of Financial Services established the Boettner Research Institute under Gregg's supervision. It's 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. 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 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. 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.

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", 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 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 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 just 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 accumulation and expenditure. First, 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 act of retirement is the behavioral fulcrum that conceptually divides an individual's wealth span into the accumulation years vs. the expenditure years. Retiring earlier decreases the number of accumulation years; retiring later increases them. As the history of work and retirement during the past seventy years or so demonstrates, patterns of retirement have shifted with strong preferences for early retirement during the second half of the 20th century now easing as more older workers remain in or return to the labor force. By itself a shorter accumulation stage tells only part of the story. At the same time over these decades, life expectancy has been increasing 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 is accumulated 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 improvements in longevity will dramatically diminish and 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 and directs attention to the dynamic interaction of these changes.

Second, during the same recent decades in which the balance in years between the two stages are changing, the complexity of the accumulation stage and the expenditure stage have been increasing. Increasing life expectancy has increased complexity of the accumulation stage in at least two crucial ways, the most obvious being health, health care, and the financing of health care in later life. A separate but intertwined expenditure issue focuses on family aging—how increasing longevity has changed the age structure of the family with substantial implications for the financial relationships 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 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 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 their teenage and young-adult children. 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. At the same time, of course, 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 social policy and individual behavior.

Changes in Complexity

Over the past hundred years 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.

Among several factors contributing to the increasing complexity of the accumulation stage in the United States are the substantial changes in the American pension system.

The Endowed Chair in Financial Gerontology --

About the Boettner-Gregg Endowed Chair at Widener University—and other places

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

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