COGNITIVE FUNCTION AS A PROXY OF FINANCIAL DECISION MAKING IN OLDER PRIMARY CARE ADULTS

Abstract

Adults over 54 in the United States own about 2/3 of all wealth in the country. However, many older adults appear to make sub-optimal financial decisions, leaving them at high risk for financial exploitation and large monetary losses. To provide greater insights into the relationship among aging, diminished cognitive capacity, and financial decision-making, we administered a unique and comprehensive battery of neuropsychological tests, as well as unique assessments measuring financial literacy and monetary choice delay discounting, to 60 subjects aged 35–85 years. We then used regression analysis to analyze the relationships among these measures. The Executive Function/Organization (EF-O), Attention Working/Memory (AWM), Delay Discounting (DD), and Visuospatial Functions (VF) variables were the best predictors of financial literacy. The EF-O, AWM, and VF coefficients displayed a positive sign, indicating that higher scores on these tests predicted higher levels of financial literacy. The DD variable coefficient appeared with a negative sign, suggesting that higher discount rates (implying higher levels of impulsivity) predict lower levels of financial literacy. The age variable was highly significant in a positive direction, suggesting that financial literacy rates increase with age. Performance on standard tests of intelligence, including the MMSE and the Test of Premorbid Functioning, did not appear to be significant predictors of financial literacy. Measures of verbal and visual memory also did not appear significant. Much of the attention on preventing financial exploitation among the elderly, especially within the financial services industry, has been focused on memory loss. However, our results suggests that the executive function-related deficits associated with Alzheimer's disease (or other forms of dementia) are the biggest threats to an individual's capacity to make good financial decisions. The significance of executive-function related capabilities suggests that memory loss is not the only, and perhaps not even the most consequential, indicator of diminished financial decision-making capacity. Executive function-related measures remained significant even after controlling for age. The study points to the desirability of closer communication among mental health professionals, family members, and financial advisers. Because they are often the first to observe behavioral changes in their clients, financial advisers need more training and tools to help them identify potential warning signs.