I’m a big believer that both spouses, or partners, of a couple be intimately familiar with their household’s finances and investments. But an eye-opening study about how older couples make money decisions when one has dementia offers powerful evidence for this view.
The study of Americans over 50 and their spouses between 1998 through 2008, by economists Joanne W. Hsu of the Federal Reserve Board and Robert Willis of the University of Michigan, found that as cognition declines for the “financial decision maker,” money management is eventually turned over to his (or her) “cognitively intact” spouse. No surprise there.
A Money Handoff That Happens Too Late
But Hsu and Willis said that handoff from the dementia victim often doesn’t happen until “well after difficulties handling money have already emerged” and “even after he is aware of his difficulties handling money or has even received a diagnosis of a memory-related disease.” In fact, 80 percent of the spouses who were approaching or experiencing dementia and had been responsible for the couple’s finances previously were still managing the couples’ money.
(MORE: How Aging Impacts Our Financial Decisions)
Problem is, by that point, the person with Alzheimer’s or another form of dementia may have already been making serious financial mistakes without knowing it.
Worse, if the spouse without dementia isn’t knowledgeable about the pair’s investments and finances, it’s probably now too late to become educated. The partner with cognitive impairment won’t be lucid enough to explain things.
Increasing the Risk of Financial Fraud
Not only can dementia lead to poor financial decision-making; it can also make sufferers susceptible to financial fraud. Older victims of financial fraud lose $2.9 billion annually, according to a 2011 MetLife study.
“The findings of this report are especially troubling considering that we are in the middle of a large transfer of wealth from members of the Silent and Greatest generations to their boomer generation children,” said Holly Deni, a financial gerontologist who runs ElderLife, an eldercare advisory service based in Little Falls, N.J. “Whenever there is money on the table, predators are never far behind.”
(MORE: Caring for Someone Who Is Cognitively Impaired)
The danger is highest for retired couples who derive income primarily from investments they manage — 401(k)s, IRAs, mutual funds, stocks and bonds, bank accounts — as opposed to those whose money comes mostly from fixed pensions and Social Security checks.
401(k) Investors at Greater Risk
“If a household’s retirement income comes primarily from wealth that is individually managed, then the household will be exposed to the risk of poor investment decisions,” the authors write. “In such a case, it would be possible to quickly squander wealth that was meant to last months or even years.”
Here’s why this study is so important for couples to take seriously: More than one in five Americans 71 and older (22 percent, or 5.4 million people) have mild cognitive impairment, which can be an early sign of Alzheimer’s. And, of course, there’s no telling whether you or your husband, wife or partner could have dementia in the future.
Although the survey dealt with dementia, the implications are much broader. After all, you or your spouse could be in terrible accident or suffer a catastrophic illness, making it impossible to make financial decisions and again pointing to the importance of shared knowledge about the household’s money matters.
5 Tips For Couples
Here are my five pieces of advice for couples:
1. If you’ve assigned one spouse all the financial duties and the other spouse never looks at the investment statements, please stop doing that. “As the men who have traditionally been in charge of the family checkbook and brokerage accounts lose their financial capacity to cognitive decline, the women in their lives who are likely to outlive them need to be educated about money, budgeting and investments,” said Deni.
If the spouse in the dark — man or woman — doesn’t know much about investing or taxes, the time for education is now. There are plenty of books, websites and classes (at local colleges or online) to soak up this knowledge. I recommend a particularly helpful Next Avenue piece by Ann Logue on how to get started learning about investing.
It’s also essential to know all the basics of your spouse or partner’s finances, such as all the credit cards and accounts in his or her name.
In another Next Avenue blog post I wrote, widower Terry O’Reilly told me about all the things he wished he’d known about his wife Donna’s finances before she died unexpectedly from an adverse reaction to a common prescription drug last year.
2. If one spouse is in charge of deciding where and when to invest and when to make retirement plan withdrawals, the other should pay close attention to those decisions. Read every 401(k), bank and brokerage statement and look for recent transactions.
This way, if there’s a change of behavior, you’ll notice — it could be an early sign of cognitive impairment.
3. Each spouse should have a power of attorney drawn up, giving the other — or a trusted adviser known as a proxy — the ability to make financial decisions for the couple if necessary. “You must identify someone who will stand in for you in decision-making and who will put your best interests ahead of their own,” Deni said.
As she told me a few months back after speaking at a seminar on “The Impact of Aging on Financial Decisions” run by the National Endowment for Financial Education and the Society of American Business Editors and Writers: “Anyone who doesn’t have a power of attorney should get one because any of us can fall into incapacity at any time.”
4. If you notice your spouse starting to have cognitive difficulty, don’t delay taking over financial responsibilities — or at least sharing them. This might be a good time to begin or expand automatic bill paying and direct deposit of income, noted Deni.
5. Finally, if you begin showing signs of dementia, you and your spouse need to develop a realistic plan for the progression of the disease. This, of course, means far more than handling money.
“Being forthright with family, friends and especially named proxies about the details of how you wish to be cared for will help them as they face critical decisions about your treatment when you can no longer speak for yourself,” said Deni. “These conversations will likely be among the most difficult of your life, but the peace of mind they provide to all involved is more than worth the discomfort.”