Why a California legislative measure underestimates older adults

by BY LAURA L. CARSTENSEN and PAUL IRVING

OPINION: – On June 15, World Elder Abuse Day, launched by the International Network for the Prevention of Elder Abuse and the World Health Organization at the United Nations, raised awareness about the abuse and neglect of older persons around the world. Among the many challenges faced by older adults, financial exploitation looms large.

Financial fraud is perpetrated on adults of all ages, but older people are more likely to be targeted, largely because they hold more wealth than younger people. Evidence that older people are especially susceptible to scams is mixed; in fact, some studies have found that older people are more resistant to financial scams than younger people. Nevertheless, when frauds are successful with older people, the losses they incur can be devastating, not only because older people have more money to lose, but because they also have shorter time horizons to recoup those losses.

There is widespread agreement among advocates for older adults and the financial services industry that solutions are needed. Bankers, financial advisors, and policy makers have been struggling for years to identify ways to protect older adults from fraud. More can be done, but it must be done thoughtfully. Unfortunately, legislation based solely on chronological age, such as California Senate Bill 278, would fundamentally change the way banks and other businesses engage with older people. Senate Bill 278 would establish a de facto fiduciary conservator relationship – limiting the financial autonomy of millions of competent older people and, for reasons noted below, hurt more people than it helps. Indeed, the legislation itself is premised on the pervasive stereotype that age is a reasonable predictor of competence. It is not.

In fact, chronological age is a poor predictor of functioning in adulthood. Older populations include both the wisest members of society and the most impaired. Moreover, although it is a devastating impairment, most people 65 years and older do not suffer from dementia; more than 90 percent of people aged 65 to 74 are not cognitively impaired. Rates of dementia do increase with age, but even in the oldest segment of the population, the majority of people are cognitively intact.

Of course, there are many reasons why people make poor financial decisions, such as drug addiction, inexperience, and mental illness; all of these factors, however, are more prevalent in younger people than in older people.

Normal age-related cognitive decline, or typical changes in cognitive processing that occur in most people, is evident mostly on speeded tasks that involve responses to novel stimuli. These changes have little effect on deliberative reasoning, especially on familiar tasks. In fact, because age is associated with greater familiarity with personal finances, older people benefit considerably from their experience when making financial decisions. A study published in the Proceedings of the National Academy of Science found that investing experience facilitated financial decisions even when the efficiency of cognitive processing was somewhat reduced.

Stereotypes about older people are pervasive, with “incompetent” among the most common. Because Senate Bill 278 will put the onus on front-facing employees (i.e., bank tellers) to determine if customers are making poor financial decisions, nonprofessionals will be charged with making decisions about the cognitive competency of older people. Understanding the potential legal action against their employers if employees fail to report, combined with an absence of consequences for over-reporting, employees will be highly incentivized to err on the side of caution. Given the vast evidence of ageism, this legislation will likely delay financial transactions, ranging from the most routine to time-sensitive real estate transactions, for millions of older people, not to mention the burden placed on elder abuse investigators whose time will be consumed investigating financial transactions made by competent people.

What can be done to address financial fraud? Employee training and financial education and planning services should be prioritized, as should collaboration and coordination with law enforcement and social services agencies. The power of increasingly sophisticated technologies should be harnessed.

We need real solutions that protect potential victims and do not unduly underestimate and patronize the majority of older people. In a time in which ageism remains so prevalent and the dignity and well-being of older adults should be of concern to all of us, we can do better than Senate Bill 278.

Laura L. Carstensen, Ph.D. is the director of the Stanford Center on Longevity. Paul Irving is a Senior Advisor at the Milken Institute and founding chair of its Center for the Future of Aging.

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Why a California legislative measure underestimates older adults