Older adults diagnosed with dementia lose their ability to assess how well they manage their finances, according to a recent study I co-authored in The Gerontologist. In comparison, people of the same age who don’t have dementia are aware of their financial abilities – and this awareness improves over time.

For our study, we used data from over 2,000 adults in the U.S. age 65 and older, collected during a long-term study on aging. We focused on how participants’ financial skills changed over time. The study began in 1998 and is still running, but we probed data collected between 1998 and 2009.

Participants were assessed at one year, two years, five years and 10 years for their ability to carry out everyday tasks, including ones that required handling money. For example, they had to calculate the cost of a gym membership and a store discount rate, fill out part of a tax return and assess the cost of medical services. They also rated how well they thought they could do everyday financial tasks. Initially, none of the participants were diagnosed with dementia, but over the course of the decade, 87 participants, or 3.1%, received a dementia diagnosis.

We found that even though participants’ performance on financial tasks declined as they aged, older adults who did not have dementia and older adults who had mild cognitive impairment were appropriately aware of their financial abilities. What’s more, that awareness increased over time. However, participants who were diagnosed with dementia during the study and experienced severe cognitive decline often misjudged how well they performed financial tasks.

The lack of insight into one’s cognitive abilities is called anosognosia. This study reveals a new type called financial anosognosia.

Why it matters

As people get older, their financial management skills start to deteriorate. The combination of a lifelong accumulation of wealth, declining financial abilities and a lack of awareness of those declines puts older adults at serious risk for financial scams.

Few tools are available that can support families in helping cognitively impaired adults manage their finances. Our research suggests that there is a critical window of time after people begin to experience cognitive decline during which they are still aware of their financial abilities. We believe that this is when people can take action to secure their finances and develop systems to protect themselves from fraud.

What still isn’t known

Close friends or family members are often tempted to take away the financial autonomy of an older adult who is mismanaging their finances. However, that may not be the best solution, particularly for people who feel that handling their finances is a core part of their identity. More research is needed to identify how best to balance personal autonomy and the need to protect a person’s finances.

What’s next

This study used paper-and-pencil tasks to assess financial performance. But increasingly, many older adults are using online banking.

E-banking simplifies many calculations, which may be helpful for older adults with declining cognition. However, e-banking can also make finances more of a black box, which may decrease a person’s awareness of their financial abilities. Furthermore, e-banking is constantly advancing, putting older adults at a disadvantage because they are more likely to be less cognitively flexible and to learn more slowly.

We hope to explore whether older adults with and without cognitive decline have similar awareness of their ability to appropriately manage their finances online and identify potential financial scams.

The Research Brief is a short take on interesting academic work.

Ian McDonough receives funding from The National Institutes of Health.