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Investing and Dementia

Fred Thompson needs more money, so he sells reverse mortgages to the elderly. Taking advice from scoundrels is one of the risks facing the elderly.

It seems obvious that older people shouldn’t be forced into making complex decisions about health care and investments. But it isn’t obvious enough to market cheerleaders. They say the elderly should be buying medical care insurance and drug plans in the open market, and that they should be managing their own retirement funds. A recent report from the Federal Reserve Board discusses one particularly awful aspect of the policy of self-reliance. It says that a substantial number of older people are attacked by dementia and risk losing the family’s financial security.

The report, Dementia Risk and Financial Decision Making by Older Households: The Impact of Information, says that 14% of Americans over the age of 70 are affected by dementia, based on the estimates in a study from 2007, and that the percentage increases with age. The Alzheimer’s Association provides recent estimates:

An estimated 5.2 million Americans of all ages have Alzheimer’s disease in 2013. This includes an estimated 5 million people age 65 and older and approximately 200,000 individuals younger than age 65 who have younger-onset Alzheimer’s.

The number of Americans with Alzheimer’s disease and other dementias will grow as the U.S. population age 65 and older continues to increase. By 2025, the number of people age 65 and older with Alzheimer’s disease is estimated to reach 7.1 million—a 40 percent increase from the 5 million age 65 and older currently affected. By 2050, the number of people age 65 and older with Alzheimer’s disease may nearly triple, from 5 million to a projected 13.8 million, barring the development of medical breakthroughs to prevent, slow or stop the disease. [Emphasis in original]

As people age, they suffer from bouts of memory failure, but at least they can remember those bouts. People suffering from dementia cannot remember. You can get an idea of the level of impairment considered by the Fed report to constitute a problem here; it’s scary to think that people who can do a bit better than this are considered able to function in financial matters.

The Fed Study found that people are more likely to pass on the responsibility for financial matters if they are aware of their disabilities, but sadly it found that over 80% of people scoring in the demented range were listed as the financial respondent; apparently they remained in charge of the family finances. That is a serious risk for the financial security of the family.

Generally, older people are more vulnerable to financial difficulties than younger people. About 15% of elderly abuse cases arise from financial exploitation according to one study. That’s about .5 cases per 1000 people over the age of 60. The study looks at theft, fraud and other forms of abuse. For example, in one family I know about, the preacher from the church visited weekly to collect the monthly contribution an old woman had promised.

But apart from abuse, the management of a household is complicated. There is management of income from pensions, Social Security and savings. There is bill-paying, and management of debt, an increasing problem for people over 65. See Table 18 of the 2010 Survey of Consumer Finances. Approximately 20% of elderly families have substantial financial wealth. They have to manage their portfolios. This wasn’t always so problematic, because people could just buy bonds for a steady stream of income. Today, and for the foreseeable future, interest rates will be low, and reinvestment of maturing bonds and bank CDs is a serious problem. One goal of the Fed’s Quantitative Easing program is to encourage people to invest in the stock market, seeking higher returns. The Fed report points to a paper that says older people have “worse stock selection ability and poor diversification skill”, and other cited studies agree.

In 2012, the Investor Protection Trust did a survey of older people and their children asking about financial fraud, and found that

20 percent of Americans aged 65 or older – more than 7.3 million senior citizens — already have “been taken advantage of financially in terms of an inappropriate investment, unreasonably high fees for financial services, or outright fraud.” That self-reported figure for older Americans is higher than the 15 percent of children who say their parent or parents aged 65 have been swindled.

Even more troubling, 16% of respondents say they don’t feel confident making big financial decisions alone, and another 4% say they don’t understand financial decisions others are making for them. The door to swindling stock sellers is wide open.

The Fed report doesn’t offer any advice to people trying to cope with this problem, and the neoliberals see it as a big opportunity for their masters to harvest money from the failing elderly. Here are a couple of ideas. First, spouses are less likely to notice signs of impairment because they are around all the time. It may be that children who visit from time to time are more likely to notice the signs of dementia. At that point, family dynamics takes over, but hopefully the children will want to say something so that their parents can take the necessary actions.

Second, one of the early signs of impairment is trouble with bill-paying. There is an easy way to handle this: the couple can agree that all money related mail and email is opened by the non-bill paying spouse. That person can check to make sure there were no missed payments, and that there were no surprising payments either by check or by credit card. If there is a problem, the couple can take the necessary steps. Dividing responsibilities this way is a good idea anyway, so both partners have a good understanding of their financial situation.

Finally, a personal opinion. The baby boom generation isn’t like its parents. In the 50s, men handled the money, and women didn’t, and that was that. For that generation, money was a deep dark secret. There is a much greater sense of partnership between baby boomer spouses on financial matters, and less of a patriarchal sense of control over the purse as a sign of masculinity. If boomers are more open with their spouses and children as they age, these problems will not as severe.

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