According to National Council on Aging, over 5 million seniors fall prey to senior financial exploitation every year, and the estimated annual losses by these older Americans in elder abuse scams may be as high as $36.5 billion. Understanding why older Americans may be susceptible and then building a plan to reduce the risk is imperative to protect their dignity and security.
There are two types of intelligence that all humans acquire, crystallized intelligence and fluid intelligence.
Crystallized intelligence is the part of our intelligence that is developed and strengthened over time. This is our mind’s muscle memory that goes into effect without necessarily having to concentrate. As we live, experiences continue to wear familiar well-trodden paths in our brain so that we can act without consciously thinking. Speaking, reading, riding a bike, and driving a car all utilize our crystallized intelligence. If you’ve ever driven home from work without thinking about your route, or how you drove, and you feel like you put yourself on autopilot, you were relying on your crystallized intelligence.
The first time we try something new, it may be difficult. The more trials we have, the easier it becomes. As we learn new skills and try new experiences throughout our lives, our crystallized intelligence continues to grow.
Fluid intelligence is the creative ability to use logic and reasoning to analyze new information and solve new problems. Fluid intelligence can help us understand how we relate to the environment around us and helps us remember where we put things, what needs to be done, and how things relate to each other. This is the part of intelligence that allows individuals to look at a scenario and decide on the best potential outcomes based on actual or inferred knowledge. If you're driving a car, fluid intelligence will help you decide when it's safe to merge, or how to change your route when a detour might save you some time.
From the time we are born until approximately age 50, our fluid intelligence continues to increase. Studies have shown however, that after age 50 we continue to show a decline in our fluid intelligence limiting our ability to use logic and reasoning to solve problems. According to a 2015 study by the Center for Retirement Research, it is estimated that 50% of the 80 year old population would have difficulty making complicated financial decisions.
If losing our fluid intelligence as we age is likely, and dubious characters realize that they can take advantage of that fact, then what can be done to mitigate the risk of elder financial exploitation?
Here are four keys:
- Simplify, simplify, simplify. Our financial lives get messy over time. Consolidate random accounts whenever possible. Pool common 401(k) and IRA accounts; close out smaller unnecessary savings accounts and CDs; transfer in separate individual stocks and bonds into a single brokerage account; consider finding a financial professional that can aggregate as many accounts on a single statement as possible. Fewer moving parts make it easier to monitor and less likely that accounts might be forgotten, overlooked or become considered abandoned property to be sent to your state to hold until claimed.
- Consider the services of a daily money manager. Bill paying is one of the duties that relies on our fluid intelligence. Remembering to pay bills on time to avoid late fees, having an important insurance policy lapse, or utilities being turned off might be logic that slips. A daily money manager is a hired personal bookkeeping professional to receive and pay bills for your loved one. They often have experience with payment of medical bills. An alternative to a professional daily money manager would be to have a trusted family member take over the bill-paying responsibilities. Online banking can automate much of this work.
- Automate cash flow. Get as many income sources as possible to be set up to be direct deposit to avoid checks getting lost and set up automatic bill pay for regular ongoing liabilities. Close out unnecessary credit cards that pose a spending risks and request a daily spending limit on a credit cards that remain. Link a debit card to a limited balance account to mitigate the risk of exploitation.
- Open lines of communication. Explain to your loved one your concerns about them becoming a victim. Provide powers of attorney documents to your current banks and investment firms to ensure they can release information to their trusted family member and request that your loved on name you as trusted contact on the account. Many institutions request the naming of a trusted contact (especially for account holders over age 70) that they can reach out to if future concerns about spending or red flags of potential financial abuse were to be noticed.
Fraud, manipulation, and financial abuse will continue to be a concern as we age. Ben Franklin is noted for saying, “An ounce of prevention, is worth a pound of cure.” Finding simple ways to limit the incidence in the first place is a key to protecting your family’s financial security.
We invite you to visit our Wealth and Health Assessments page to complete the Financial Safety and Risk Profile Assessment to complete a complimentary questionnaire and receive a personalized score and receive specific feedback on steps you can take to reduce your risks and improve your score.