joyful adult daughter greeting happy surprised senior mother in garden

Give the Gift of Financial Security this Holiday Season

I’m an economist, and believe it or not, that qualifies me as an expert gift giver. The best gift? Cold hard cash. Just think about it. Say someone gave you the perfect gift…the thing you’ve been wanting. And say it cost a $100. You know who also could have bought you that gift with $100? Yourself! You might say, “but, I never would have bought that nice gift for myself.” Exactly. Which means it was worth less than $100 to you. See? Get that cash.

But, this post isn’t really about bashing gift giving. Instead, it’s to recommend that this holiday season you consider giving a different sort of gift. A gift that money can’t buy. The financial security of your older loved ones. Luckily, its an easy gift to give. You just need to ensure that they have someone trusted in place to help them manage their finances as they get older.

When Help Becomes Necessary

The basic problem is pretty simple — time. People age, and as they age, they are more likely to need assistance. The good news is that normal cognitive aging generally does not affect
someone’s ability to manage their money. But, as people age, they become more and more likely to need help.

This help becomes needed because as people age, they are more likely to develop cognitive deficits. One common kind of deficit is something called Mild Cognitive Impairment (MCI). According to the Mayo Clinic, “MCI is the stage between the expected cognitive decline of normal aging and the more serious decline of dementia. It’s characterized by problems with memory, language, thinking or judgment.” A more severe kind of deficit is full-blown Dementia. Figure 1 shows how these issues develop with age.

Figure 1. Incidence of MCI and Dementia, by Age

Source: Belbase and Sanzenbacher (2017) calculations from the University of Michigan, Health and Retirement Study (1994-2014).

The problem is that as these conditions develop, people gradually lose the ability to manage their own finances effectively. According to a 2009 study, 20 percent of people with MCI and a whopping 80 percent of people with dementia are incapable of basic financial tasks. These numbers means that a third of people age 85 and over can no longer manage their own finances. Simple tasks that include writing checks, sending money orders or paying with cash, checking bank-balances, and making transfers, deposits or withdrawals from a bank or ATM can become difficult. What happens if those with impairments don’t have help? Badness.

When Help Isn’t Available

Think about the most basic measures of financial security. For example, having enough money so that you don’t have to skip meals. Or, being able to afford basic expenses, like rent/mortgage, utility bills, or medial/prescription drug bills. Certainly, falling short of these basics would be a sign of real trouble.

And, people with dementia and without assistance with their finances suffer these consequences at twice the rate as those with assistance. For example, according to a 2017 study, 7 percent of people with dementia and without help with their finances can’t afford their utilities. That number is just 3 percent for those with dementia but with help managing their money. And, this 2:1 ratio applies across a variety of measures, like food security or the ability to pay medical bills.

Indeed, this difference persists even comparing people with similar income and education. Those with dementia and without help are 7 percentage points more likely to face severe financial problems than otherwise similar people without dementia. Having help completely erases this gap. To put it differently, having dementia does not pose a significant risk to basic finances as long as you have a trusted other to provide help.

Having the Financial Management “Talk”

Everyone remembers the uncomfortable talk from the teenage years. Those birds and bees. As you gather for the holidays, it might be a good time to have another potentially uncomfortable talk — does your older relative have a plan to get help with financial management?

Fortunately, unlike the birds and bees, this talk does not have to be uncomfortable. If you have it early, before someone develops any difficulties, this talk is not akin to a “taking away the car keys moment.” Instead, it can be a supportive moment. You can say, “I know you don’t need this right now, but in a few years, do you have a plan?” If the answer is “No,” you might be that person…or you might help them brainstorm. After all, a little help can go a long way towards eliminating the detrimental effect of dementia on severe financial shortfalls.

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