Why Older Americans Are More Financially Vulnerable

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By Kimberly Palmer

In addition to wrinkles and graying hair, getting older brings on a less-visible change: diminished cognitive abilities, from simple math to making investment decisions, which can have a big impact on finances.

According to new research from Daniel Marson, a professor of neurology at the University of Alabama–Birmingham, adults in their 60s and 70s start to exhibit declines in financial abilities, including a vulnerability to potential telephone fraud, difficulty making change at checkout and having a harder time prioritizing bills. Those diminished abilities can make it a struggle to keep up with everyday financial management tasks.

The findings suggest several warning signs that family members can be on the lookout for. An untouched stack of mail, for example, could indicate that an older person is falling behind on bills . Another warning sign is having difficulty with basic math, such as calculating a tip in a restaurant or a medical deductible. Overlooking investment risks, and focusing too much on the benefits rather than the risks of a potential investment, can be another early sign of cognitive impairment, Marson says.

Some Silver Linings

Getting older isn't all bad. Marson notes some age-related improvements, including wisdom and pattern recognition. But those gains are offset by the struggle to perform basic math, keep up with bills and avoid fraud. Marson points out that Americans over age 65 hold about $18.1 trillion in wealth, and that money is at risk as a result of these kinds of impairments.

"We think [cognitive decline] is one of the biggest issues that we're facing around the whole concept of financial capability," says Ted Beck, president and CEO of the National Endowment for Financial Education, which funds cognitive decline research, including Marson's. "There's been a lot of work done around dementia, but little on just normal aging," he says. Given the aging American population, cognitive decline among otherwise healthy older adults could be an increasingly big issue when it comes to financial management, he adds.

Abuse and Fraud

That kind of difficulty also opens the way for financial abuse, which is a major problem among older adults. Speaking at the Gerontological Society of America's annual meeting in the District of Columbia this month, Naomi Karp, policy adviser at the Consumer Financial Protection Bureau Office for Older Americans, called financial abuse the most common form of abuse among older adults. She said older Americans with significant assets, like home equity, are particular targets, and it is an extremely underreported crime.

Perpetrators include contractors, scam artists, financial advisors and even family members, Karp says. Older Americans are especially vulnerable because of cognitive decline, isolation, disability, bereavement and health problems, she added. Like Americans of any age, older adults can submit complaints about financial products or services directly through the consumerfinance.gov website.

To prepare for your own inevitable cognitive decline as a result of the normal aging process, consider these five tips from Beck, which he suggests doing regularly starting at age 50:

  • Talk with your partner. "If you're married, sit down and talk about what you want the rest of your financial life to look like," Beck says, adding that he is always amazed to learn how few couples actually talk to each other about money.

  • Get your financial data in order. If you've moved around frequently or held many jobs with different retirement accounts, then it's time to consolidate or at least organize all that paperwork. That way, someone else could more easily step in and manage your financial affairs if necessary. Even passwords should be stored in a safe place, and trusted family members should know where to access accounts in an emergency.

  • Check your paperwork. Beck suggests making sure your will and power of attorney documents are up to date and valid in the state where you currently live.

  • Assign roles. Decide which family members you'll want to handle different tasks, including financial, health and social ones. "Isolation is a big deal," Beck says, and you might need someone to help you stay connected to the outside world. If family members aren't up to the task, then you can look for professional support, too.

  • Consider hiring professionals. Before hiring a financial adviser or lawyer, you'll want to check their references and qualifications, and make sure they haven't had significant complaints lodged against them. Taking all these steps early, in your 50s, before significant cognitive decline occurs, can help keep you in charge of your finances, even if you start allowing others to assist. "Everybody thinks they're Superman and that they'll never get sick, but we know that's not true," Beck says.

Kimberly Palmer is a senior editor for U.S. News Money and the author of the new book, "The Economy of You." She wrote this article through a Journalists in Aging Fellowship, a collaboration of New America Media and the Gerontological Society of America, with support from AARP.