Many people work hard to make sure that there are plentiful resources to provide for the go-go, slow-go and no-go season of life. Have you ever considered how the mental capacity to manage those resources will change as you age? A study done in January of 2017 by the Center for Retirement Research at Boston College delves into how cognitive aging could affect financial capacity. Your fiscal capacity is the ability to manage your financial affairs in your own best interest. It scopes a broad assortment of activities which range from rudimentary money skills (understanding the worth of bills and coins) to complex activities such as identifying assets and income, exercising judgment around risk and return of investments or comprehending tax implications of purchases or sales.
Many actions in our financial lives are based on “crystallized” intelligence. This is the knowledge and skills we have gained over time, also known as financial literacy. These are the practical, day to day financial applications or processes in our lives. It’s heightened with the degree of involvement in household monetary matters. With normal cognitive aging, knowledge remains largely intact during our 70s or 80s. Read: At what age are you too old to manage your money? Our “fluid” intelligence incorporates memory, attention and information processing. As our wealth grows, so does the need to monitor where it is, and the way to best use it for 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 tend to be more likely to create deficits in the area of judgment over their capacity to perform the basic tasks. However, there are cautions in both areas of capacity. Many people in their fall season are capable of handling the “crystallized” aspects of their financial lives. If someone has not taken an active role in the household finances, they’re vulnerable to losing capacity in this area. 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 family member. Women who lose a partner and have not been involved in the family finances are highly vulnerable to losing capacity in this area. Read: These simple lifestyle changes can prevent or slow Alzheimer’s Cognitive impairment, ranging from mild (CMI), to dementia chiefly affects financial judgment — the “fluid” intelligence”. This can pose challenges in that someone could feel confident and remain “educated” about day to day activities, but their diminished judgment makes them more likely to become victims of fraud. As people loose both the “crystallized” and “fluid” elements of their intellect, they are additionally exposed to financial abuse by professionals. Since a crucial characteristic of cognitive decline or impairment is the unawareness of the deteriorating state, how can we protect ourselves and our loved ones? 1. Become financially literate. I have heard a lot of stories that started with “my partner is the money man, I just let them look after it”. Educate and empower yourself about everything financial. Start somewhere and keep learning. 2. Educate yourself on the aging process. Speak with your elder family members regarding what they’re experiencing. Embrace and get the most out of it. Do the best you can with your options to maximize your wellbeing in every area of your life during this season. 3. Build trusted relationships. Including your relationships with friends, family and advisers (wellness, religious, financial). Make sure everyone has your best interest in mind and speak with one another. Transparency, integrity and honesty will serve you well. Danielle Howard is a Certified Financial Planner practitioner. She is the author of “Your Financial Revolution: Time to Recognize, 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 aren’t affiliated.
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