It's inevitable. As we age, our bodies and our brains change, and not always like fine wine. Cognitive skills decline as part of the normal aging process and in turn, so do some of our financial management skills.
Research shows that financial decision-making peaks around age 53, and by age 60 our ability to process new information starts to slow. The shift happens at a different pace for everyone, and it can be accelerated by medical conditions such as Alzheimer's and dementia. While some people are capable of managing their own finances throughout their lifetime, others may find their skills suffering.
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The impact could be as benign as paying a utility bill twice, or something worse, like falling prey to a scam.
Experts say there are signs that children or spouses can watch out for that will help them know when it's time to step in and help an older relative with their finances.
"This will probably happen to someone you love or to you," said Bill Hensley, director of education at the National Endowment for Financial Education. "The way to deal with it is to plan ahead. Plan ahead, prepare for the worst, put those safeguards in place."
A new study from the University of Alabama, with support from the NEFE, has identified five signs that aging may be impacting someone's financial decision making.
The study looked at up to seven years of financial skill performance among cognitively normal older adults. The warning signs of financial decline it found are:
— Taking longer to complete everyday financial tasks;
— Missing key details in financial documents;
— Having difficulty with everyday math;
— Showing decreased understanding of common financial concepts;
— Having difficulty identifying risks in an investment opportunity.
Seeing any of these signs doesn't mean an elderly relative needs to have their checkbook taken away immediately. But they can be a warning that decline is occurring. And that can be a sign that help is needed.
"Hopefully we are helping people understand the importance of planning ahead so that you are not the victim of your own cognitive decline, or someone else taking advantage of that," Hensley said.
Unfortunately, this planning often doesn't occur until after an illness, death or other unfortunate event. But ideally, people should be putting plans and documents into place to protect themselves by midlife or earlier.
Here are a few tips on how to prepare:
START THE CONVERSATION
If possible, begin talking about how you want your financial matters handled early, before things go awry. Talk to your spouse, your children and other loved ones about your preferences and game plan.
If initiating the conversation about someone else, do so gently. Ask them where basic documents such as a will are stored, or if they even exist. Another effective tactic is to start by saying "I'm thinking of doing X, Y or Z for myself, what have you done?"
Experts also suggest pointing to a loved one's death or something in popular culture as a starting point. Financial planners say requests for medical directives jumped after the 2005 death of Terri Schiavo, the brain-damaged Florida woman whose family fought a years-long right-to-die case.
This isn't a conversation that will, or should, happen in one sitting.
"Assure them we aren't taking over your finances, but we want to make sure you are protected," said Amy Florian, whose business specializes in teaching people how to support and interact with those going through life-changing events.
People often avoid these conversations because they are uncomfortable talking about money or thinking about death. Florian says to be clear that this isn't about dying, it's about living and taking the burdens off your family.
"It's about living the way you want to until you take your last breath," she said. "There are things you can't control, but control what you can."
ESTABLISH YOUR TEAM
Pick a team to help monitor and potentially step in if your financial skills start to deteriorate. This can include family, friends or others you trust.
Assign roles to everyone involved: name someone to serve as your medical decision maker should you need one, and someone to act as your financial power of attorney. And consider whether you want one person in charge, or if you want some checks and balances in place.
Talk to everyone involved to make sure they are comfortable with their role.
CREATE ESSENTIAL DOCUMENTS
Get some basic legal documents in place to ensure your wishes can be carried out.
At a minimum, write a will, a medical directive and a financial inventory listing all your financial accounts, assets and insurance policies. Keep these documents in a safe place and let your team know where to access them.
Seek professional assistance from a lawyer, estate planner or financial planner along the way if needed.
Florian also suggests that people prepare a "diminishing capacity letter" giving permission to a financial planner or other professional to contact loved ones if they believe their mental capacity is weakening.
MANAGE YOUR PLAN
It's important for families to be in sync about what needs to happen if it becomes necessary to take over a loved one's financial decisions, said Suzanne Schmitt, vice president of family engagement at Fidelity Investments.
Financial interdependence is often a gradual process. Some people may want early intervention, such as setting up alerts for their kids if their accounts show unusual activity. Others do not want any help unless their mental capacity is dramatically diminished. Respect those preferences.
"Be proactive, plan as if this will happen, even if it never does, have a plan in case it does," Hensley said.