Dementia and Financial Security: What You Need to Know

8 minutes read time. 

Your loved one misses a credit card payment. Or perhaps they forget to pay their electric bill. Are these just financial hiccups or hints of something more serious? According to research, they could be early warning signs of dementia. Today, roughly 5.8 million people in the United States are struggling with Alzheimer’s disease and related dementias, including 5.6 million people aged 65 and older, according to the U.S. Centers for Disease Control and Prevention.

THE IMPACT OF DEMENTIA ON FINANCES

New research from the New York Federal Reserve found that, on average, a person’s credit score begins to decline as a result of missed mortgage and credit card payments in the five years leading up to a dementia diagnosis. For those in the early stages of memory-related disorders who fall behind on payments, one year before being diagnosed, the average credit card balances in delinquency go up by more than 50%. Dr. Lauren Hersch Nicholas, a health economist and professor at the University of Colorado School of Medicine, has been at the forefront of studying the link between cognitive decline and financial issues. Hearing the personal stories of people with memory disorders who were struggling with financial issues was the driving force behind the work she’s done. “We were hearing a lot of anecdotes about major losses linked to dementia and wanted to understand how common this was, and whether it can be reliably picked up in data, suggesting that we might be able to find ways of preventing some of these losses,” explains Dr. Nicholas.

In one of her latest studies, she and colleagues found that Medicare beneficiaries who go on to be clinically diagnosed with dementia are more likely to miss payments on bills as early as six years before diagnosis. Six years. Impacted individuals also started to develop subprime credit scores two-and-a-half years before diagnosis, compared to those who were never diagnosed.

A GROWING PROBLEM AS AMERICANS AGE

As America ages and millions begin to move through the Peak 65 Zone, undoubtedly, we will see the number of people with cognitive impairment increasing. The NY Fed study estimates that within the next 10 years, there will be 60,000 credit delinquencies resulting from undiagnosed memory disorders.

So, where do we go from here? It starts with being more aware of and attuned to the warning signs that could be hinting at a bigger issue. For example, a missed credit card payment. As Dr. Nicholas notes, though, the negative financial impacts caused by memory disorders aren’t just caused by forgetfulness. They’re also caused by a change in risk tolerance. “Dementia is associated with a number of cognitive changes that can impact financial well-being including the way we perceive risk and our confidence around handling that risk,” she explains. “Which can mean that people with dementia see risky financial decisions that they would have avoided earlier in life as great ideas.”

WHAT TO DO WITH THE DATA

The growing number of older adults living with dementia underscores the need to develop policies that safeguard against the effects of poor money management, as well as financial scams, Dr. Nicholas says. While we’ll likely never be in a place where something like a declining credit score can diagnose a memory disorder, researchers are hopeful their work can help raise red flags sooner. “We are hoping that this research raises awareness of the warning signs, encourages people to enlist trusted financial contacts before signs of impairment begin, and enables us to develop tools and policies that better protect patients with dementia,” says Dr. Nicholas.

One of those tools could be something as simple as a screening form at the doctor’s office that helps identify financial management issues earlier on. “Tools for screening patients for financial self-management difficulty could be useful to improve detection of dementia in clinical practice,” Dr. Nicholas notes in her research.

HOW TO PROTECT YOURSELF AND YOUR LOVED ONES

Being aware of problems sooner can give families more time to prepare for what can be a costly illness to deal with. The expense of care for someone living with dementia is estimated to be $400,000 over the course of their lifetime, according to the Alzheimer’s Association.

The National Institute on Aging (NIA) suggests the following tips for protecting you and your loved ones from the financial pitfalls of undiagnosed cognitive disorders:

• Keep the lines of communication open. Make sure you’re talking regularly to your loved one about financial decisions and that you have a budget established.
• Set up automatic bill payments and take steps to restrict spending. “Consider giving the person small amounts of cash to have on hand, reducing the spending limit on credit cards, and canceling unneeded credit and debit cards,” suggests the NIA.
• Establish a power of attorney. If it’s clear a loved one is struggling with finances, it’s appropriate to name a power of attorney who will have the ability to access bank accounts, pay bills and make other financial decisions for the impacted individual.
• Get their financial documents in order. “Gather the person’s important records and documents in one place. Basic papers include the person’s birth certificate, insurance information, and banking records,” notes the NIA. “These papers should also include the person’s will and any health care or financial directives to ensure that their wishes are honored.”
• Be aware of the signs of financial abuse and take steps to safeguard against scams. Sign your loved one up for the “National Do Not Call Registry,” which can help cut down on the number of scam calls they receive.