In the United States, autonomy, the ability to act on one’s values and interests and to control your own affairs, is a key component of psychological wellbeing. One type of autonomy that many of us take for granted is financial autonomy. I define financial autonomy as having control over your financial decisions and over your financial behaviors. For example, deciding to sell your home would be considered a financial decision; completing the paperwork on that sale would be a financial behavior. Imagine if you needed formal authorization or approval from a relative or fiduciary to make this decision? Or every time you wanted to charge over a certain amount on your credit card? You no longer have financial autonomy.
Not surprisingly, cognitive function impacts our financial autonomy. Unfortunately, as we age, we increase our risk for cognitive decline and impairment. According to the 2022 Alzheimer’s Association Special Report, approximately 25% of adults aged 65 years and older have been diagnosed with dementia or Mild Cognitive Impairment, often a precursor to Alzheimer’s disease. Additionally, studies suggest that the majority of older adults living with dementia are undiagnosed; one study found a rate of 62.9% of undiagnosed dementia among community dwelling older adults. To put these statistics into context, if your business has 100 clients who are aged 65 years or older, 25 to 30 of these clients could be experiencing cognitive impairment, making them susceptible to financial exploitation and undue influence, and therefore, to loss of financial autonomy.
Cognitive decline and impairment are associated with several experiences that reduce one’s financial autonomy. For example, a recent Consumer Finance Protection Bureau report confirms what we all know—older adults are targeted by scammers: 80% of suspicious activity reports of a financial loss to the Consumer Finance Protection Bureau were made by older adults, with an average loss of $34,000; seven percent of victims reported losses of $100,000 or more! Dr. Peter A. Lichtenberg, a clinical geropsychologist at Wayne State University and leading expert on financial exploitation of older adults, has found that often “people who’ve been scammed can’t figure their way out of it in terms of their credit.”
The lost money and hit to their credit can cause a downward spiral that impacts many aspects of the victims’ lives. As noted by Dr. Bob Roush, Professor of Geriatrics at Baylor College of Medicine, “That’s money many need for out-of-pocket care. If they can’t afford to pay for routine living expenses and their health care, they can spiral down, further complicating their frail conditions. And they generally don’t have time to recoup their losses, further exacerbating their financial circumstances.”
Often this financial exploitation is done by someone known to the victim, either a relative or even a fiduciary, causing a long-lasting sense of emotional betrayal. Older adults with cognitive impairment are especially at risk, in some instances, being three times more likely to experience financial exploitation than cognitively healthy older adults. Even more shocking is the finding that 40% of undue influence cases involved a person with dementia.
As an expert witness for financial exploitation and fraud cases, Dr. Lichtenberg, says that undue influence is “so heartbreaking for families when their older loved one is under the spell, if you will, of somebody else, and making decisions that go contrary to their lifelong held values, legal papers, and stated plans.” Dementia is by far the biggest cause of older adults’ vulnerability to undue influence and the dementia causes them to become paranoid and hostile towards loving family members. “And that’s what’s so heartbreaking for family members. Often, they really don’t understand the extent of the dementia and wondering why their older loved one, usually parent, has become so hostile to them and so suspicious of them. And I see this over and over again. The level of trust betrayal and paranoia is devastating.”
Finally, cognitive decline and impairment have been associated with wealth loss. One 10 year study found that a 10%–15% decline in cognitive test performance was associated with a 15–18% wealth loss among older adults. In a recent study, Dr. Lichtenberg found that more than half (56%) of older adults with cognitive impairment reported wealth loss as compared to 26% of cognitively healthy older adults. It is presumed that the association between cognitive decline and wealth loss is due to decreased financial decision-making and management abilities. In fact, newfound difficulty in managing is critical to this.”
This is dispiriting news. However, there are several protective and proactive methods you can do to reduce the risk of older adults losing financial autonomy. First, learn the signs of cognitive impairment—the Alzheimer’s Association has a wonderful guide called Know the 10 signs . If one of your clients is exhibiting these signs or is showing disconcerting changes in their financial decisions or behaviors, the adage, “see something, say something” applies. An uncomfortable conversation may hurt your client’s pride but save them from significant financial loss. As Philip Marshall pointed out, “financial advisors may know more about the cognitive capacity of their client than the client’s doctor.”
Second, Dr. Lichtenberg recommends walking through the domains of financial capacity with your older clients. Find out how they manage money, how they make financial decisions, whether they’ve organized their finances, and if they have a trusted advocate. You also can recommend that your client completes a financial vulnerability assessment administered by a trained geropsychologist.
Finally, become familiar with what Dr. Roush calls the “red flags of financial exploitation and undue influence.” Some of these red flags include being socially isolated, dependent on another to provide physical care, or being financially responsible for adult child or spouse. Notice if your client is accompanied to by a caregiver who is overly protective or dominates the client, or if the client appears fearful, suspicious, or distressed.
The much more positive news is on the proactive measures. It turns out that we have more control over our cognitive aging process than previously thought. The scientific evidence behind this statement comes from the theory of cognitive reserve. Cognitive reserve is the extent to which we use our brains efficiently and flexibly. In other words, the ability to maximize the brain we have right now. The theory was developed to explain why some older adults maintain good cognitive function despite having moderate to severe neuropathology in their brains. Numerous studies support the theory that high cognitive reserve can help compensate for age-related brain changes and even neuropathology that leads to Alzheimer’s disease.
Your clients can build up their cognitive reserve by doing certain types of everyday activities, such as hobbies that engage their minds and regular physical exercise. Indeed, doing activities that boost cognitive reserve are part of the recommended guidelines by the National Institute on Aging. Alzheimer’s Association and even AARP. These activities can be anything from learning a new skill, practicing mindfulness, or doing games that require your brain to work quickly. Indeed, the best thing your clients can do is regular cardiovascular exercise. Philip Marshall noted that it makes smart business sense for financial advisors to offer this information to their clients because it can solidify their relationship with clients and possibly the client’s next of kin. Peter Johnson, of PW Johnson Wealth and Legacy agreed that “the best results are grounded in building a support culture within and between families and their trusted professionals.”
The key here is that your clients should implement these cognitively boosting activities proactively, ideally in their 40s or 50s. What your clients do at midlife has a large impact on their cognitive function in their 70s, 80s and 90s. Your clients can start being strategic about their everyday activities and transform these cognitively boosting activities into long-term habits.
These habits can build up cognitive reserve and help maintain good cognitive function—and preserve financial autonomy—during the retirement years. The need for the finance industry to play a protective and proactive role when in comes to their clients’ cognitive function is clear. Philp Marshall, whose grandmother, Brooke Astor, suffered from Alzheimer’s and was financially abused states it succinctly: “The financial industry is playing a leadership role in protecting seniors’ net worth and understanding cognitive capacity is critical to this.”
Quinn Kennedy, Ph.D., is the director of aging research at neuroFit.