Money and Dementia: A Crisis Starting to Happen
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. Now 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.
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.
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 Micky 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.
