You've likely heard about financial scams and other fraudulent schemes that target older people. And while these stories may be on the news, many healthy seniors are capable of managing their own finances.
However, age-related cognitive decline, such as memory loss or more serious conditions like Alzheimer's disease, could affect your ability to manage your money and potentially make you more vulnerable to people who want to take advantage.
A study by the Center for Retirement Research (CRR) at Boston College highlighted the effect cognitive decline can have on money management. Here's what the research says, and some ways you can potentially protect yourself in these situations.
How Cognitive Decline Could Affect Your Finances
The CRR reviewed existing literature and studies to assess how cognitive aging affects people's ability to manage their money from their 70s to 90s.
The study found that seniors who experience normal age-related cognitive changes can usually continue to manage their money as they age. They can continue to perform day-to-day financial tasks, like paying their bills, balancing a checkbook and depositing money into a bank account. Though this group may make some financial mistakes, the consequences of these mistakes typically aren't very severe.
Seniors with cognitive impairment, however, will likely need additional help when it comes to managing their finances, especially because these health issues may make them more vulnerable to fraud. Of adults who don't have cognitive impairment, 95% are capable of handling their own money, according to the CRR study.
However, only 82% of adults with mild cognitive impairment — or symptoms that are slightly more severe than normal age-related cognitive decline — are able to do the same. This number drops with more severe cognitive issues, and the study found that only 20% of seniors with dementia are able to manage their own finances.
Age-related cognitive decline can affect your ability to process information and your ability to reason and make decisions. All these skills are typically required to manage money, which is likely why finances are affected when you experience age-related cognitive issues.
How to Help Protect Your Finances
Not everyone who ages will experience a negative effect on their finances due to age-related cognitive decline. But you may still want to be prepared. Here are some considerations.
1. Educate Yourself on the Aging Process
Consider seeking out information on the aging process from credible sources. You'll likely want to lean on your doctors and health care providers for information. You may want to ask questions about what signs and symptoms of cognitive decline to look out for. They'll likely be able to help you be more proactive about your health if you do suspect there is a problem.
2. Become Financially Literate
You should also consider educating yourself on proper money management. The CRR study indicated that seniors who take over the responsibility of managing their household's finances after a spouse dies or becomes incapacitated could be more vulnerable.
Whether you fall into this group or not, building your financial literacy could help you as you age. Your bank or local credit union might be a good place to start, as many of these institutions provide financial education content online or at their branch locations. You can also read books and magazines to educate yourself, or do some research to find out whether your local senior center, library or senior services department offers classes, seminars or partnerships with institutions that provide these resources.
3. Keep Your Important Documents Updated
If you have adult children or other relatives you trust, you may want to talk to them about your finances. Consider sharing where you keep your important documents such as your insurance papers, bank account information and will.
You also may want to regularly update your documents, and talk to your family members about what's in them so there's no confusion. Having clear, open and honest conversation now could help you and your family be prepared if you can no longer manage your finances in the future.
The Importance of Financial Preparedness as You Age
Aging is a natural part of life. We'll all go through changes as we age, whether they're mental or physical. But how you prepare for these changes could make all the difference. Consider staying financially educated, keeping any important documents up to date, and having an open and honest dialogue with trusted family members about your finances and your wishes if there ever comes a time when you can't make financial decisions on your own.
Preparing now may help you be financially ready for the aging process and help you adequately protect the financial legacy you've worked hard to build.
