Source: Graphicroyalty / Adobe Stock
As people age, some of their cognitive abilities naturally decline. In fact, some skills, such as working memory, reach their peak around the age of 30 and then begin to gradually diminish which is a normal part of aging. Additionally, about 10 percent of people age 65 or older have certain medical conditions that lead to cognitive impairment.
A large body of research is taking a closer look at how changes in cognitive function during aging – whether normal or those associated with dementia – affect financial decision-making.
In the world of online stock trading and fraudulent marketing calls, it is important that seniors be able to evaluate their options and understand the risks and benefits of their financial decisions. As companies have shifted from offering a pension to offering a 401(k), most retirees today are managing their retirement savings.
In one studyThe researchers calculated the age at which people are least likely to make financial mistakes: 53. The study used a psychological testing model that found that younger financial managers make poorer decisions because, while they have stronger cognitive abilities, they have less experience; Older CFOs lose some cognitive functions but have the advantage of experience to guide them.
It’s clear that people manage their finances long after turning 53. For many, their abilities begin to deteriorate significantly in their 70s and 80s.
2015 study She found that the natural decline in cognition due to aging leads to a decline in financial literacy. The researchers found that as participants’ cognitive skills decreased, their self-confidence declined. But this decline in overall self-confidence did not translate into a lack of confidence in financial skills. Most people thought they could handle their finances the same way they did before. However, those with cognitive decline were more likely to get help with financial decisions. However, many participants who experienced significant cognitive decline did not get help with their finances.
Older people who develop dementia suffer more. systematic review Of 42 studies published last year that evaluated financial decision making across a continuum from healthy aging to dementia. It found, not surprisingly, that older adults without dementia made better financial decisions than those who did develop dementia. Participants with more severe cognitive impairments, such as Alzheimer’s disease, made poorer decisions compared to those with mild cognitive impairments.
Mark Lacks, co-chair of geriatrics and palliative medicine at Weill Cornell Medical College, coined the term Age related financial weakness As a clinical issue, medical professionals should seek it out among older patients. he drives research project Attempting to end financial abuse among the elderly. His lab has created a new screening tool to help medical providers who work with older adults identify patients who are at risk of making poor financial decisions. The idea is to determine if the person understands that the risks exist, that they may be in danger, and what can be done to avoid the risks.
It also offers some practical advice for anyone watching an older relative or family member, including those who struggle with everyday math, delay or miss payments, and understand basic financial concepts, such as interest rates and minimum balances.
The take-home message: Normal aging and dementia can impair the ability of older adults to manage their finances. Recognizing these issues and caring for the seniors in your life is the first step to identifying and preventing potential problems.