The post-World War II era produced not only an economic heyday in America but also the demographic bulge known as the Baby Boom. The aging of that group, comprised of anyone born 1946-1964, means that by 2030, 20 percent of Americans will be 65 or over, according to the U.S. Census Bureau.
Unfortunately, one of the effects of aging is cognitive decline, from mild forms to serious ones like Alzheimer’s Disease. With age, the chances for cognitive impairment rise. Couple the fact that Americans are living longer with the extraordinarily large population of Boomers, and it’s clear America faces an unprecedented generational neurological crisis.
The figure below, courtesy of the Census Bureau, graphs the increase in Americans over the age of 65 from 1900 to 2050.
One of the most common features of cognitive decline is poor judgment. That notably shows up in an inability to accomplish routine financial tasks and a susceptibility to financial exploitation and third-party scams, even by family members. The Federal Reserve Bank of Philadelphia estimates the cost of financial damage to senior citizens at $3 billion to $6 billion annually.
In the last year, the Philadelphia Fed has been working to develop best practices for the financial industry when dealing with cognitively-challenged senior citizens. A November 2018 conference was held in concert with brain researchers, elder advocates, industry regulators, and financial sector leaders and was co-sponsored by the University of Pennsylvania’s Penn Memory Center and Healthy Brain Research Center. The event brought forth several key findings and suggestions for the banking industry, including the following:
- Review of consumer financial transactions may be helpful to doctors when diagnosing cognitive decline. Behavioral changes typically precede a diagnosis of a neurological ailment, and financial advisors attuned to their clients may be the first to notice atypical behavior. Examples of this include unexplained withdrawals, checks made out to new recipients, or multiple calls asking for password resets or other familiar information. Similarly, physicians use a battery of tests when diagnosing cognitive decline or impairment. A review of financial activity gives a real-world snapshot of how an elderly adult is managing cognitive tasks.
- Banks and financial advisers need to urge adults to plan for diminished financial capacity. While no one wants to imagine a future in which they lack control, the best way to maintain control is to set up a structure in the present. Effective February 2018, all members of the Financial Institution Regulatory Authority (FINRA) are required to make reasonable efforts to find a trusted contact for clients to verify when a customer’s account information changes. While FINRA membership excludes commercial banks not engaged in securities transactions, older adults should nonetheless ensure they have a contingency plan.
- Financial institutions need not reinvent the wheel when protecting seniors. Small banks may dread the costs of implementing programs to protect at-risk senior citizens but likely already have most of the necessary tools in place to protect those vulnerable to financial malfeasance due to cognitive issues. Simple items like developing internal protocols for staff training, reporting suspected elder abuse, and securing advance consent to share information cost little and are greatly beneficial.
- Be aware of data privacy laws. The Financial Services Modernization Act of 1999, better known as the Gramm-Leach-Bliley Act, strictly governs how financial clients’ personal information can be shared. If a financial institution suspects a client is the victim of a scam, it can place the transaction on hold until reaching the designated trusted contact or family member.
The Philadelphia Fed has made clear they will be continuing their research and the conversation around protection of cognitively-diminished older Americans.