How Do You Know if Diminished Financial Capacity Has Crept in?

By definition, you don’t recognize the signs of diminished financial capacity. You need to rely on others for this. And as you’ll see below, relying on others presents a dilemma!

This is not something to be ashamed of – it’s a natural order of aging. For some slowing down comes earlier, for others later. The later stages may involve dementia or cognitive impairments. There is a subtle difference between dementia and cognitive impairments. “The main distinctions between mild cognitive impairment and mild dementia are that in the latter, more than one cognitive domain is involved and substantial interference with daily life is evident.”

Diminished financial capacity relates cognitive impairment specifically to daily financial activities and decisions. Small and big errors can creep in when it comes to managing money and finances. Even exploitation by those who the senior may think are their loved ones or trusted people (family or friends, even by less than ethical financial advisers).

The Securities Exchange Commission (SEC) says this about it: “ ‘Diminished financial capacity’ ” is a term used to describe a decline in a person’s ability to manage money and financial assets to serve his or her best interests, including the inability to understand the consequences of investment decisions.  While the inability to manage one’s money is clearly a problem in itself, when people of any age lose the capability to manage their finances, they may also become more vulnerable to investment fraud and other forms of financial abuse.”

What are the warning signs? What should you do?

This short article briefly answers both of these questions. Recognizing The Warning Signs Of Diminished Capacity by Catherine Schnaubelt.

Here’s an article meant for advisers, but it has great insights as well: Ten Signs Your Client Has Dementia by Letha Sgritta McDowell

Why wait until it’s too late? Don’t! Plan ahead!

Since this is a natural part of aging, you should plan for it. The SEC has a great article about how to plan ahead and what steps you can take. The article also talks about what those who are helping you should do once it occurs.

And finally, what to do if others suspect exploitation is happening to you. You should provide instructions to many friends and family about what to do because you won’t recognize exploitation by definition; and a narrow set of trusted friends and family could still exploit you.

And depending on others is the dilemma I mentioned at the beginning. The fox may already be in the hen house! Thus, better to rely on more than one person and be sure they’re not in cahoots.

PS. Transitions in aging also involve other things of living besides financial ones.

Photo by Andy F / Fox And Hen public house, Bascote Heath, via Wikimedia Commons

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