The Dilemma of Money and Dementia
It seems that there is always a looming catastrophe on the horizon as the huge group of boomers move toward their senior years. With boomers turning 65 at a rate of 10,000 per day and this phenomenon continuing until 2030, any problem skyrockets into a catastrophe. Add to the vast number of boomers becoming seniors, the fact that $42 trillion (yes, that’s a T) worth of assets rests in their hands and the hands of their parents. As wealth and large groups of seniors converge, stir in the projected incidence of dementia and you now have a picture of an impending crisis.
Normal Brain Aging Changes
Let’s step back from the ledge for a moment and get down to the individual impact memory loss has on financial competency. There are normal declines that occur to the brain as we age. Problem solving skills diminish with age; memory, analytical reasoning and processing speed decline with age. Reasoning skills actually drop steadily after a peak at age 53. Finally aging erodes financial acumen resulting in mistakes with credit cards, home-equity loans, and how to pay for healthcare.
The ability to take care of our finances is termed financial capacity which includes routine tasks like basic monetary skills, carrying out cash transactions, managing a checkbook. bank statement and exercising financial judgment. Financial literacy takes financial knowledge a little farther. Concepts of investing and inflation are part of the landscape of financial literacy. And guess what – financial literacy decreases with age. Older investors are less effective in applying their investment knowledge and demonstrated worse investment skill.
Everything I just described occurs with normal aging and sustaining these types of losses puts older people at a greater risk for frauds and scams.
Now let’s look at the financial abilities of someone who is cognitively impaired (e.g. Alzheimer’s disease). Diminished financial capacity becomes apparent when it becomes difficult to identify and count money, understand debt and loans, conduct cash transactions, and pay bills– the most basic of financial skills. Financial capacity is one of the first abilities to decline with the onset of cognitive impairment. These declining skills are apparent even before a diagnosis of dementia is made. Loss of financial skills is a dilemma for this group because in all other aspects of their lives they may appear to be performing normally. So how are these people found out? This might be the first indication to family members that there is a problem. They stop in to say hi and see a pile of unpaid bills sitting on the desk. They could notice receipts for outrageous purchases. And they are usually met with resistance when asking about these issues because there is so much fear on the part of their loved one that they will lose financial autonomy. Even though they are clearly not able to take care of their financial responsibilities, they don’t understand why this is a problem that needs to be attended to.
There are six warning signs of diminished financial capacity:
1. Memory lapses: bill paying is dependent on memory – forgetting to pay a bill or repeatedly paying the same bill; multiple trips to the ATM or the bank to withdraw money; errors in check writing
2. Disorganization: handling bills, keeping track of finances, managing important financial documents – actions that are difficult to perform because there is so much disorganization of paperwork
3. Decline in checkbook management skills: this is one of the very first skills to decline; requires procedural skills which are dependent on executive abilities of the brain
4. Arithmetic mistakes: decline in both written and oral arithmetic skills
5. Conceptual confusion: new difficulty understanding financial terms and concepts
6. Impaired judgment: new interest in get rich quick schemes; change in risk preference regarding investment decisions; new found enthusiasm for questionable investments; new reports of erratic, unusual, or uncharacteristic purchases, withdrawals, or gifts.; with poor judgment comes the risk of succumbing to telephone, mail, and internet schemes; problem with impulsivity leading to gambling and overspending.
Financial Abuse and Exploitation
The inability to handle financial decisions puts this group at high risk for exploitation and abuse. This group possesses a large portion of our nation’s wealth. A 2011 Metlife Mature Market study found older adults lose $2.9 billion annually. 1 in 10 adults is a victim of mistreatment. 5.2% experience financial mistreatment by a family member. Of all forms of elder abuse, the highest rate of mistreatment was major financial exploitation. Bringing this tragedy home was the appearance of Mickey Rooney before Congress. He testified how his family had mistreated him and exploited his finances. This is a cold, heartless act of abuse.
Are there any solutions emerging for this impending crisis? The financial industry is taking steps to put safeguards in place to protect their older clients. The Financial Industry Regulatory Authority reported that some financial firms are including paperwork to access referrals to relatives, or others in the event that signs of diminished capacity surface with their client. Wells Fargo Advisors launched an Elder Client Initiatives team to answer questions from their advisors around the country on how to handle cases of possible dementia. AARP is working with the American Bankers Association Foundation on education materials for consumers, financial caregivers and bankers on age-friendly banking -> how to address dementia, fraud, and financial caregiving.
This educational push is critical to alert bankers, financial planners, and families on recognizing signs of dementia and appropriate steps to safeguard assets of clients and family members. These solutions and safeguards need to be in place as soon as possible because this problem grows bigger by the day.
Ambrose,E. (October, 2015). Money and memory: a coming crisis. AARP Bulletin/Real
Possibilities. Financial Capacity and Competency in an Aging America. (Summer, 2012). Generations 36(2). Published by the American Society on Aging. 71 Stevenson Street, Suite 1450, San Francisco, CA 94105-2938.
Ross,V. (Nov. 18, 2010). Older but not wiser? The psychology behind seniors’ susceptibility to scams. Retrieved from http://www.scientificamerican.com/article/older- but-not-wiser/?print=true