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The Impact of Aging on Financial Capacity

Here’s the good news: people are living longer. Every month, more than a quarter of a million people turn 65 in this country. And before the year 2050, seniors will outnumber children for the first time in our nation’s history. Is there a downside to this picture? In some respects – yes. The fact that folks are living longer doesn’t necessarily mean that their quality of life is improving along with the ballooning demographic. Dementias, such as Alzheimer’s Disease, pose one of the biggest global health challenges today. According to the Alzheimer’s Association, one in three seniors in the US now dies with dementia. And while scientists have made progress in understanding Alzheimer’s better, we are probably years away from a cure.

One of the many problems associated with dementia is its adverse effect on “financial capacity.” Simply put, “financial capacity” has been defined as the ability to handle one’s financial affairs. It may relate to being able to budget your household expenses, pay bills on time, balance a checkbook, write out checks accurately, or make reasonable investments. Moreover, recent research has shown that as we age, we tend to lose our “financial capacity.” This can happen well before an individual reaches the age of 65 or shows any signs of dementia. Surprisingly, one study has shown that a person’s ability to make financial decisions peaks in their mid-50s. So what can we do about this not-so-happy news? The most practical answer is simple, and that’s to prepare. Daniel Marson, a neuropsychologist and director of the Alzheimer’s Disease Center at the University of Alabama reasons that “If you can detect emerging financial impairment early, you can also step in early and protect the person.” (NYT 4/24/2015) Once we understand and accept that our ability to make financial decisions will likely decline over time, we can take steps to protect ourselves – and our parents. Learn the warning signs of fraud and identity theft, get regular medical check-ups, focus on financial planning early on, and consider making financial monitoring a family affair. For more information on “financial capacity,” check out the Consumer Financial Protection Bureau’s joint advisory with the SEC: You can find the links at: