In the second installment of our series about finances, aging and brain health, we discuss how brain changes associated with typical aging can play a role in a person’s financial decisions, too.
The article is part II of a Being Patient series about the financial burdens of dementia. Check out part I and part III for more about dementia and finances.
For Howard Tischler’s mother, financial exploitation began with a telemarketer, who sold her an auto club policy even though she was legally blind and didn’t have a car or driver’s license. From there, her financial life unravelled.
Her son wasn’t aware of what had transpired until about a year and a half later. When the family began to suspect her cognitive abilities were declining, he examined her credit card bills and found unexpected — and exorbitant — charges.
In part 1 of this series, we
explored how dementia
can affect money management.
“We believe she got into a sucker list,” Tischler told Being Patient. “Other telemarketers called her and sold inappropriate products. Eventually, a friend came in and basically stole the rest of her money. She lost her life savings.”
Tischler went on to co-found EverSafe, a tech company with products that help prevent financial exploitation of older adults. He refers to the financial exploitation of older adults as America’s hidden epidemic: Only one in 44 cases are ever reported.
“It’s extremely common,” Daniel Marson, professor of neurology at the University of Alabama at Birmingham, said of the decline in financial decision-making ability during aging. “In fact, I might say it’s inevitable. Just the fact that you’re 70 or 80 years old may be impacting your financial skills,” he told Kiplinger, “quite apart from the fact of whether you have Alzheimer’s or any cognitive disorder of aging.”
Aging makes us more vulnerable to fraud and financial abuse
Paying bills, balancing a checkbook, and deciding when to spend and when to save can be cognitively demanding tasks no matter who is tackling them, but for older adults, managing day-to-day financial tasks can be especially challenging due to age-related changes in the brain.
According to Dr. Jason Karlawish, professor of medicine at the University of Pennsylvania and author of The Problem of Alzheimer’s, as we age our brains change, and with these routine changes comes the loss of what he calls fluid intelligence — the kind of brain function that helps us process new information under time pressure and integrate facts into our decision-making.
While some people may carry on with everyday tasks with no apparent issue, others find that this decline in fluid intelligence makes managing finances much more challenging. One study shows that people’s financial decision-making ability peaks in their 50s. That’s when people have substantial experience and knowledge, also known as crystallized intelligence, with only modest decline in fluid intelligence. However, crystallized intelligence tends to plateau after age 70. The plateau, along with the decline in fluid intelligence, may explain why older adults make more financial mistakes than middle-aged individuals.
According to Karlawish, older adults can also experience changes in their perspective of time and ways of processing emotions. They tend to focus on the present and positive emotions, which in addition to the decline in fluid intelligence, can render them more vulnerable to a scam.
“As you perceive your time [to be] more limited, you’re more likely to avoid stressful and/or negative emotional events, and you’re more likely to be attracted to or otherwise engage with things that are positive,” he said. “If I’m a scammer, I definitely would play on that emotion.”
Financial fraud and abuse take many forms, ranging from government imposter scams to lottery schemes and romance scammers. But perpetrators are most often people close to the victims like family members, friends or neighbors.
Compounding the problem is the under-reporting. According to Tischler, older adults often deny that they could fall victim to financial exploitation. When it does occur, they are often unaware or resist from telling others.
“In their heart, they never believe that it’s going to happen to them,” Tischler told Being Patient. “If it is happening to them, they don’t want to tell anybody about it because they have some concerns that the ‘financial keys’ will be taken away from them.”
Fighting financial fraud
Technology companies, advocacy groups, lawmakers and financial institutions are becoming more vigilant of financial mismanagement in older adults.
Through EverSafe, CEO Tischler and co-founder former prosecutor Liz Loewy, an app monitors data including credit, bank and retirement accounts, real estate records, and new financial accounts, creating a financial profile of the user in order to identify abnormal activities. Users can designate family, professionals or other trusted individuals to receive alerts and help with monitoring through view-only access. The company has also developed a portal for financial institutions to report suspicious cases.
Along with EverSafe, a growing number of other financial-technology companies are emerging to help older adults and their families manage their finances with online tools, leveraging cutting-edge algorithms to help people monitor their financial activities.
Joining the mix of tech companies in helping with the financial management of older adults and individuals living with dementia are lawmakers, non-profit organizations and financial institutions. Some financial institutions are partnering with advocacy groups like the Alzheimer’s Association and hosting educational seminars on financial literacy.
In recent years, lawmakers have passed legislation to cover securities firms from liability if they report abuse, granting them the right to temporarily suspend transactions in suspected cases. Securities firms are now also required to ask a customer for a trusted contact.
How to manage finances in older age
Financial advisers urge older adults, families and friends to begin planning before the red flags of financial mismanagement arise, which can also help prevent mistakes from happening in the first place.
Simplifying finances and consolidating bank accounts is a way to begin reducing money clutter. After all, sprawling accounts can increase people’s chances of making financial blunders. Writing down the purpose of each account, whether it’s an emergency fund, a legacy plan for the family or for generating income, could help individuals think about ways to allocate and rebalance the accounts. People could take simple steps to automate bill payments and arrange for direct deposits of income sources.
Financial advisers say that assembling a protective tribe, a small group of people who will step in to assist if ever needed is critical to reducing the risk of abuse committed by trusted individuals.
While adult children and relatives often step in to help with money management, daily tasks can become difficult if they have busy lives or live far away. A daily money manager, who acts as a personal financial assistant, can fill in the gap. They could also help protect older adults from financial exploitation, looking out for warning signs including unusual donations and unexplained withdrawals of money.