Older adults display difficulties in encoding and retrieval of information, resulting in poorer memory. This may be due to an inability of older adults to engage elaborative encoding strategies during learning. This study examined behavioural and electrophysiological effects of explicit cues to self‐initiate learning during encoding and subsequent recognition of words in younger adults (YA), older control adults (OA) and older adults with relative memory impairment (OD). The task was a variation of the Old/New paradigm, some study items were preceded by a cue to learn the word (L) while others by a do not learn cue (X). Behaviourally, YA outperformed OA and OD on the recognition task, with no significant difference between OA and OD. Event‐related potentials at encoding revealed enhanced early visual processing (70‐140ms) for L‐vs.X‐words in young and old. Only YA exhibited a greater late posterior positivity (LPP) (200‐500ms) for all words during encoding perhaps reflecting superior encoding strategy. During recognition, only YA differentiated L‐vs.X‐words with enhanced frontal P200 (150‐250ms) suggesting impaired early word selection for retrieval in older groups; however, OD had enhanced P200 activity compared to OA during L‐word retrieval. The LPP (250‐500ms) was reduced in amplitude for L‐words compared to both X‐ and New‐words. However, YA showed greater LPP amplitude for all words compared to OA. For older groups, we observed reduced left parietal hemispheric asymmetry apparent in YA during encoding and recognition, especially for OD. Findings are interpreted in light of models of compensation and dedifferentiation associated with age‐related changes in memory function.