Many folks work hard to make sure there are plentiful resources to provide for the go-go, slow-go and no-go season of life. Have you ever considered how the psychological ability to manage those resources will change as you age?
A study done in January of 2017 from the Center for Retirement Research at Boston College delves into how cognitive aging could impact financial capacity.
Your fiscal capacity is the ability to control your financial affairs in your own best interest. It scopes a broad range of activities which range from rudimentary money skills (understanding the worth of bills and coins) to complex activities like identifying income and assets, exercising judgment around risk and return of investments or comprehending tax implications of purchases or sales.
Many activities in our financial lives are based on “crystallized” intelligence. This is the knowledge and skills we’ve gained over time, also referred to as financial literacy. These are the practical, day to day financial applications or procedures in our lives. It’s heightened with the degree of involvement in household monetary matters. With normal cognitive aging, knowledge remains largely intact throughout our 70s or 80s.
Our “fluid” intelligence incorporates memory, attention and information processing. As our prosperity grows, so does the need to track where it is, and the way to best use it to get what’s important to us. This “fluid” facet of our intellect may begin to decrease as early as age 30.
The study found that individuals who age normally are more likely to develop deficits in the region of judgment over their capacity to perform the basic tasks. But, there are cautions in both regions of capacity.
Many people in their autumn season are capable of handling the “crystallized” aspects of their financial lives. If a person has not taken an active role in the household finances, they are vulnerable to losing ability in this region. A “financial novice” may be a individual that has had to take over the responsibilities of handling the household finances in the event of a death or incapacitation of another relative. Women who lose a partner and have not been involved in the family finances are highly vulnerable to losing ability in this region.
Cognitive impairment, ranging from mild (CMI), to dementia chiefly affects monetary judgment — the “fluid” intelligence”. This can pose challenges in that a person can feel confident and remain “educated” about day to day activities, but their impaired judgment makes them more likely to become victims of fraud. As individuals loose both the “crystallized” and “fluid” elements of the intellect, they are also exposed to financial abuse by caregivers.
Since a critical characteristic of cognitive decline or handicap is the unawareness of the deteriorating condition, how do we protect ourselves and our loved ones?
1. Become financially literate. I’ve heard too many stories that started with “my partner is the money man, I just have them take care of it”. Educate and empower yourself about everything financial. Start somewhere and keep learning.
2. Educate yourself on the aging procedure. Talk to your elder family members regarding what they are experiencing. Embrace and make the most out of it. Do the best you can with your choices to maximize your health in all areas of your life during this season.
3. Build trusted relationships. Including your relationships with friends, family and advisers (health, spiritual, financial). Make sure everyone has your best interest in mind and speak with each other. Transparency, integrity and honesty will serve you well.
Danielle Howard is a Certified Financial Planner practitioner. She’s the author of “Your Financial Revolution: Time to Understand, Revitalize, and Release Your Financial Power.” Advisory Services offered through Cambridge Investment Research Advisors, Inc., A Registered Investment Advisor. Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Cambridge and WBD are not affiliated.
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