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Dementia and Financial Decision Making

The impact of a memory disease diagnosis on a couple’s finances depends on how actively the couple controls their retirement accounts. Couples who manage their own retirement accounts are 2.4 times more likely to change the spouse in charge of handling their finances when a medical diagnosis of cognitive impairment is given. This is the finding of Federal Reserve economist Joanne Hsu and University of Michigan professor Robert Willis.

A reason for this is that couples who control their investment choices are potentially more exposed to poor financial decisions. As such, they face greater benefits and are more likely to make a change in reaction to an increased awareness of cognitive impairment.

However, the study’s authors found that the probability of switching the financial respondent is less dependent on the financial decision-maker being “cognitively impaired but not demented” (CIND) then it is on the probability of reporting problems with managing money. The decision to turn over finances to one’s spouse often occurs after people develop difficulties managing money. Hsu and Willis based these conclusions on data included in the ongoing Health and Retirement Study (HRS) and on supplementary data included in the Aging, Demographics, and Memory Study (ADAMS).

No difficulties in managing money were reported by the financial decision-makers until their cognition scores reached the CIND range. Once the scores reached the CIND range, the proportion declined linearly to about 20% to 60% reporting no difficulties in the dementia range of scores. The authors believe this suggests that many cognitively impaired respondents were either not aware of the problems they have managing money or were not willing to tell an interviewer about their problems. Notably, the data revealed that even among respondents with cognitive scores in the dementia range, only 25% reported a memory disease diagnosis.

Though individuals were less likely to be the financial decision-maker as cognition scores declined, over 80% of the baseline financial decision-makers continued to manage their finances even with scores in the demented range. Hsu and Willis theorize that one possible reason could be the presence of a spouse with even worse cognitive impairment.

Source: “Dementia Risk and Financial Decision Making by Older Households: The Impact of Information,” by Joanne W. Hsu and Robert J. Willis, Federal Reserve Board, April 1, 2013.


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