“Mild cognitive impairment causes memory loss and poor judgment, both of which may not be obvious until it’s too late. Seniors with mild cognitive impairment are at risk for making disastrous money management decisions that can jeopardize their life savings, their home ownership, as well as the finances of other family members.” writes Sarah Stevenson in Early Stage Dementia: How to Protect Your Aging Parents’ Assets.
The Securities and Exchange Commission issued an Investor Bulletin and Consumer Advisory: Planning for Diminished Capacity and Illness. Consumer Reports has a brief article on “Money Management and the Aging Brain.”
It is hard for parents to let go of financial responsibilities. It’s even harder for children to bring up the topic … or worse, even recognize the problems. The issue goes beyond the dreaded Alzheimer’s – the issue may be as simple as just slowing down in thought processes. When it comes to money and investments – a complex structure or accounts at many places may be a challenge … for the parents to track, and ultimately for heirs to find.
Simplifying and consolidating things helps. To make matters worse – at ANY age – is what is called the Dunning-Kruger effect. This is where incompetence is not (actually can not) be recognized. People who don’t know something about a topic over estimate what they think they know about it – they tend to overestimate their ability, knowledge or performance in a wide variety of areas including logical reasoning and financial knowledge. From Wikipedia: Dunning and Kruger proposed that, for a given skill, incompetent people will:
- fail to recognize their own lack of skill
- fail to recognize genuine skill in others
- fail to recognize the extremity of their inadequacy
- recognize and acknowledge their own previous lack of skill, if they are exposed to training for that skill.
Aging makes these above tendencies even worse.
Stevenson’s article offers suggestions, which you can read via the link above. What I’d like to emphasize here though it that the issue goes beyond cognitive impairment – it also involves overconfidence in the elderly’s ability to continue to function mentally like they once did when young. Often the elderly recognize their physical limitations, but not their mental slowing down.
What can you do? Help them update their estate planning documents to include durable and limited powers of attorney so you may help them. Help them simplify their financial affairs – maybe taking the position that heirs need things simplified (so they’re doing it for everyone else – not because of their problems). Here’s a great guide: Having the Tough Conversation with Aging Parents, and another approach 4 Financial Issues You Need To Discuss With Aging Parents, both of which provide insight into this important conversation.
Once you feel like you’ve made progress, even just a little, have them write their decisions and thoughts down – why they’ve decided to do something, when they think they may do it, and what may trigger them into a stronger course of action, etc – AND THEN – have them send it to themselves … Write a Letter to Yourself (Themselves) in the Future. It is a stronger message when they recall their own writing.
This easy test – start at 100 and count backwards by 7, helps point out how financial skills often go first when cognition slips – and it’s such a slow process that no one notices it, possibly until it’s too late.
All this may take time – and eventually it may become their idea – so start early to nip possible later financial issues in the bud.