Signs of Diminished Financial Capacity in Older Adults

by Karen Reimers MD

Significant lapses in financial judgment can raise the suspicion of dementia.

 Key points

• Family members may notice early “red flags” or warning signs of diminished financial capacity.
• Dementia is the most important risk factor for diminished financial capacity.
• In older people, early cognitive impairment can show up as diminished executive functioning.
• If needed, consider having someone help oversee the older person’s financial transactions.

Family members and caregivers can be on the lookout for the following early “red flags” or warning signs of diminished financial capacity, particularly when the changes are clearly different from the older person’s prior baseline financial skills:

• Forgetfulness and memory lapses related to finances, such as mismanagement of accounts, forgetting to open and pay bills, paying bills twice, or forgetting to deposit checks, leading to late payments or other problems
• Poor judgment about finances, such as extreme unwarranted anxiety about money or a new interest in lotteries or get-rich-quick schemes in an individual who would not previously have considered the scheme
• Struggling with simple math calculations and everyday financial tasks, such as figuring out a tip, balancing a checkbook, or interpreting a bank statement, for example
• Disorganization and confusion about money, such as getting overwhelmed with financial decision-making and discussions, deterioration in a person’s ability to understand basic financial concepts
• Significant changes in an older adult’s spending habits, such as uncharacteristic major purchases, gifts, or donations

Normal cognitive changes do occur as we age, often starting around age 50. Most of these changes are not precursors of dementia. Normal cognitive changes due to aging include difficulties with word finding and taking a longer time to process and digest new information. Some aspects of thinking, such as vocabulary, can actually improve as we age. At the same time, in an older person, significant lapses in financial judgment and uncharacteristic poor financial decision-making may raise the suspicion of dementia.

Dementia

Dementia is the most important risk factor for diminished financial capacity. Dementia typically develops gradually over several years. The onset of dementia is usually insidious, with cognitive changes happening gradually over time. Many individuals with early cognitive decline have no awareness there is a problem and don’t appreciate what their deficits are.

Problems with financial decision-making increase the risk of an older adult becoming a victim of financial exploitation. As cognitive abilities decline, older adults are much more susceptible to scams, manipulative tactics, high-pressure sales pitches, fraud, identity theft, abuse of family agreements or power of attorney, exploiting money arrangements, and emotional blackmail.

Elder financial abuse affects millions of families worldwide each year.

Cognitive losses often decline from different causes and at different rates. For some individuals, particularly with Alzheimer’s, memory decline happens first, with language and social skills relatively preserved. In older people, early cognitive impairment can show up as diminished executive functioning, which includes the capacity to plan ahead and meet goals (e.g., making and following a budget and setting financial goals), control impulses (e.g., deciding when to buy and when to save), weigh and analyze multiple factors in financial decision-making (e.g., compare features and costs on big purchases, search for sales and deals), handle unanticipated financial challenges, follow multiple-step directions even when interrupted, and stay focused on financial tasks despite distractions.

Warning Signs

Early warning signs of cognitive problems due to dementia can include getting lost on familiar routes, missing or forgetting appointments, having difficulty cooking, not paying bills, and having trouble with appliances. Early dementia may present as significantly poor judgment in decision-making, such as suddenly gifting the family vehicle to the mail carrier. These are people who may have increased anxiety in unfamiliar situations and be much more easily overwhelmed. They may rely much more on family members for guidance or to answer questions for them.

Distinguishing what might be normal aging from early dementia is sometimes a matter of degree. Spouses often compensate for these early deficits.

What a Family Can Do

To summarize, potential indicators of diminished financial capacity include difficulty in handling routine financial tasks, impulsive decisions, changes in organizational skills, and unusual behavior surrounding money.

In response to these changes, families and caregivers can consider having someone help oversee the older person’s financial transactions, such as a trusted family member or professional fiduciary money manager. It may be helpful to communicate with the bank, which may detect unusual activity and transactions, and to consider online banking and bill payments.

Recognizing and responding to early warning signs of diminished financial capacity can help protect elders from financial exploitation and families from its consequences.

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Signs of Diminished Financial Capacity in Older Adults