There are a number of reasons why financial decision-making skills may decline, but older adults are more likely to struggle with managing money and are more susceptible to poor investment decisions. This is often a result of cognitive decline due to age or illness. Older adults are also more vulnerable to fraud or elder financial abuse, often by relatives.
According to the U.S. Securities and Exchange Commission (opens new window), older adults are particularly vulnerable to tactics of scam artists (opens new window)who are “nice” or attempt to develop a false bond of friendship. Scam artists prey on older adults who are polite to others and have difficulty saying “no” or feel indebted to someone who has provided unsolicited financial and investment advice.
Despite years of accumulated knowledge and experience, it is likely that at some point financial capability will diminish with age, making it more difficult to competently handle money-related matters.
According to the National Endowment for Financial Education (opens new window) knowing how to identify the warning signs of financial decline can help friends, family, caretakers, clinicians and other engaged professionals — as well as the aging individuals themselves — be proactive instead of reactive about financial skill declines in everyday life and throughout the lifelong financial planning process. The following checklist from the study Early Warning Signs of Impaired Financial Skills in Older Adults (opens new window) can help identify early declines before diminished financial decision making or exploitation occurs.
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EARLY WARNING SIGNS:
Impact of Aging on Financial Decision Making
It’s inevitable that an average person will see a change in their ability to make financial decisions as they age. While there are varying degrees of cognitive decline for each individual, the key is to be prepared. Knowing how to identify early warning signs* can help friends, family and caretakers be proactive instead of reactive in the planning process.
WARNING SIGN #1: Taking Longer to Complete Financial Tasks
EXAMPLES OF INCREASED SLOWNESS:
- Preparing bills for mailing
- Completing check and check register
- Filing income taxes
WARNING SIGN #2: Missing Key Details in Financial Documents
EXAMPLES OF DIFFICULTY WITH REDUCED ATTENTION:
- Identifying a bill that is overdue and needs prompt attention
- Scanning/finding details in complex documents like a bank statement
- Completing sections of a check register
WARNING SIGN #3: Experiencing Difficulty with Everyday Math
EXAMPLES OF DIFFICULTY WITH DECLINING MATH SKILLS:
- Determining a return on an investment
- Calculating a medical deductible
- Doing two related calculations at same time, especially making change
- Figuring a tip in a restaurant
WARNING SIGN #4: Showing Decreased Understanding of Financial Concepts
EXAMPLES OF DIFFICULTY WITH UNDERSTANDING:
- Health care concepts like medical deductible
- Terms in a bank statement like interest rate and minimum balance
WARNING SIGN #5: Identifying Risks in Investment Opportunities
EXAMPLES OF NEW DIFFICULTY:
- Identifying a key risk in an investment purchase
- Emphasizing benefits/return and minimizing risks
The full report, available at www.nefe.org/_images/research/Early-Warning-Signs-Impaired-Financial-Skills/Early-Warning-Signs-Impaired-Financial-Skills-Executive-Summary.pdf (opens new window)
, documents research funded by the National Endowment for Financial Education® (NEFE®) to identify very early financial skill declines in cognitively normal older adults through analyses of a unique longitudinal dataset funded by the National Institute of Aging of the National Institutes of Health.