My Comments: Readers of my posts know I usually talk about money or some aspect of it. My challenge over the years has been to assess the financial literacy of whomever I’m talking with. And that challenge increases with age; both mine and that of my friends and clients.

This article might start a useful conversation between you and your children and/or other family members. I’ve had clients reach the end of their lives leaving loved ones totally ignorant about their financial lives. It can dramatically increase the pain and frustration of those they leave behind.

by Danielle Howard \ Aug 12, 2017

You could lose the ability to manage your finances and not know it

Many people work hard to make sure there are ample assets 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 financial capacity is the ability to manage your financial affairs in your own best interest. It scopes a broad range of activities ranging from rudimentary money skills (understanding the value 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 activities 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 procedures in our lives. It is heightened with the level of involvement in family 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 wealth grows, so does the need to track where it is, and how to best use it for what is important to us. This “fluid” aspect of our intellect can start to decline as early as age 30.

The research found that individuals who age normally are more likely to develop deficits in the area of judgment over their ability to carry out the basic tasks. However, there are cautions in both areas of capacity.

Many people in their fall season are competent of managing the “crystallized” aspects of their financial lives. If a person has not taken an active role in the family finances, they are vulnerable to losing capacity in this area. A “financial novice” may be a person that has had to take over the responsibilities of managing the family finances in the event of a death or incapacitation of another family member. Women who lose a spouse and have not been involved in the family finances are highly vulnerable to losing capacity in this area.

Cognitive impairment, ranging from mild (CMI), to dementia primarily affects financial judgment — the “fluid” intelligence”. This can pose challenges in that a person can feel confident and remain “knowledgeable” about day to day activities, but their impaired 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 caregivers.

Since a critical 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 too many stories that started with “my spouse is the money person, I just let them take care of it”. Educate and empower yourself around everything financial. Start somewhere and keep learning.

2. Educate yourself on the aging process. Talk to your elder family members as to 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. That includes your relationships with friends, family and advisers (health, spiritual, financial). Make sure everyone has your best interest in mind and communicate 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 Recognize, Revitalize, and Release Your Financial Power.”