Cognitive Decline Among Older Americans Can Result in 'Expensive, Irreversible' Money Management Mistakes

Millions of older Americans experience cognitive decline that’s significant enough to interfere with their financial skills, but despite this reality 75% of these individuals continue managing their own money.

According to a new study published in JAMA Network Open, cognitive decline can lead to overconfidence, memory problems and deficits in decision making—all of which can translate into risks surrounding money management.

“If seniors with cognitive decline continue to manage household finances, they may be at high risk of making financial mistakes that have potentially severe consequences, including missed bill payments, risky investment choices, and financial exploitation,” lead study author Jing Li, PhD, assistant professor of Health Economics at the University of Washington School of Pharmacy, told Health.

For those who have a senior family member or loved one who’s an older adult, it’s understandable to have concerns. Here’s a closer look at the study findings and steps that can be taken to address such challenges.

To assess the potential link between cognitive decline and money management skills, researchers analyzed data from the 2018 Health and Retirement Study, a nationally-representative survey of American adults aged 50 and up. The researchers focused on nearly 8,800 men and women who were 65 and older and who also had available data on their memory and thinking status.

About eight in 10 of the individuals studied did not have any detectable cognitive impairment. But nearly 6% had dementia and roughly 14% had cognitively impaired nondementia (CIND), which is when someone has slight (but noticeable) declines in their memory and thinking skills—but has not reached the level of dementia.

When applied to the general population level, researchers found that final segment of individuals represents about 7.4 million Americans.

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Catastrophic Financial Consequences

Most of the individuals who were surveyed said they still manage their own finances—and 40% of these individuals said they lived alone. Of those who said they still handle their household finances, 57% of survey respondents with dementia and 15% of those with CIND said it was difficult to handle their own money.

What’s more, about a third of those with dementia or CIND said they had a lot of “risky assets” like stocks or loans. Many of those were sizable, with people with dementia who had stocks having a median value of $215,000, while those with CIND had stocks with a median of $125,000.

The study was “part of a larger research agenda motivated by stories of family members who found out about a loved one’s dementia through catastrophic financial losses,” study co-author Lauren Nicholas, PhD, a health economist at the Colorado School of Public Health, told Health.

Trouble managing money “is often one of the earliest signs of cognitive impairment—meaning that seniors may not even be aware that they have problems,” Nicholas said. But, she noted, there is “significant potential” during everyday money management for “expensive, irreversible mistakes like forgetting to pay bills, falling prey to scammers, or making bad investment decisions.”

This “creates a risk of running out of money, since going back to work is usually not an option late in life,” especially in people with cognitive decline, Nicholas added. “This can also create financial risks for other members of the patient’s family or household who may lose money they were counting on or have to make up the difference,” Nicholas said.

The study’s findings are “a big concern, especially with an aging population,” Scott Kaiser, MD, a geriatrician and director of Geriatric Cognitive Health for the Pacific Neuroscience Institute at Providence Saint John’s Health Center in Santa Monica, California told Health. According to 2019 data from the U.S. Census Bureau, 54.1 million Americans are 65 and older and, by 2034, older adults are expected to outnumber children for the first time in U.S. history.

Given the risk of developing cognitive decline while managing your own household income, financial planning is crucial, Amy Goyer, AARP’s national family and caregiving expert, told Health.

“It’s always a good idea to work with a professional, such as an accountant or financial planner, who can help with decision-making,” she said. It’s vital to designate a power of attorney for finances—someone to make financial decisions for you—before someone develops cognitive decline so that if a decline in mental status happens, safeguards will be put in place, Goyer said.

“It’s also important to protect against scams and fraud, as some people with cognitive decline may be easily targeted,” Goyer said. “Setting up alerts and notifications so that a family caregiver is aware if there is unusual activity in their accounts is very helpful.”

You can even help a loved one sign up for the Do Not Call registry to help ward off telemarketers, she said. AARP has a financial workbook for family caregivers that offers up specifics on how to help manage a loved one’s money as well.

Early screening for cognitive impairment—which can often be done by a primary care physician—is also important, Dr. Kaiser said. This can also help with planning, Li pointed out, since “detecting cognitive impairment early on could help with financial planning before it deteriorates into dementia stage.”

While it can be tough for anyone to think about trusting someone else with their money, Nicholas said it’s important to have a well thought out plan in place.

“The value of designating a financial respondent can literally be in the thousands or even millions of dollars, since there are few protections for older adults who willingly give assets to someone who tricks them, for example, or who stop paying rent, mortgages, or taxes—even when these errors are the result of cognitive impairment,” she said.

Goyer agrees. “It’s better to be prepared and set up financial powers of attorney while a person is of sound mind and able to do so,” she said. “Then, if/when they are needed, a financial representative is prepared and able to assist.”