A Planet Money podcast episode last week directed me to a paper released earlier this year: Dementia and Long-run Trajectories in Household Finances. The authors explain their findings in pretty plain English, so I’m just going to quote their work:
“Our results point to impaired financial decision-making beginning about six years prior to clinically recognizable dementia.”
“A growing body of work links cognitive ability to financial outcomes such as portfolio allocation, credit use, and susceptibility to fraud. […] Most recently, Mazzonna and Peracchi (2024) show that older adults are often unaware of their own cognitive decline, and that such misperception can lead to persistent financial mistakes. We extend this literature by showing that the economic consequences of cognitive decline appear well before the onset of dementia symptoms (or clinical diagnosis) and manifest in sustained losses in household wealth.”
“Our findings underscore that dementia-related financial risk should be viewed as a universal and forward-looking household risk, not just a concern for those who are already symptomatic or diagnosed. Because financial mistakes often appear before individuals or families become aware of any cognitive decline, relying solely on diagnosis or subjective awareness is unlikely to be sufficient. Safeguards that can be implemented well in advance—such as designating trusted financial contacts, simplifying financial arrangements, or allocating part of retirement wealth to products with guaranteed payouts—may help reduce exposure to losses from impaired financial decision-making.”
Their findings are exactly in line with the stories I keep hearing stories from readers: situations in which, conversationally, Mom/Dad/Uncle Steve still seems fine. No obvious red flags. And yet, they’re making financial decisions that make no sense or falling victim to scams that they would not have fallen for just a few years ago.
Of course, dementia (or other significant cognitive decline) does not happen to everybody. But we don’t know in advance to whom it will happen. And waiting until there are obvious personality-related symptoms before putting protective financial policies in place doesn’t work very well, because the financial problems often come first.
I think the authors suggestions are excellent: simplified portfolios (and simplified finances in general), designated trusted financial contacts (to allow the financial institutions to share information with that contact), options for guaranteed income (most notably: delaying Social Security). And I’ll add: adopting security practices that are resistant to scams/phishing (i.e., passkeys and security keys).
A key point here is that all of the above suggestions are generally good ideas regardless of the possibility of cognitive decline.
- Dementia and Long-run Trajectories in Household Finances from Jing Li, Kathleen M. McGarry, Lauren Hersch Nicholas, and Jonathan S. Skinner
- How Your Bank Account Might Predict Dementia (The Indicator from Planet Money podcast episode)
Other Recommended Reading
- Why an Ohio Retiree Capped Her Net Worth and Spent Down the Excess from Sarah Leeson (very brief Marketplace podcast segment)
- Buying at Tops or Bottoms from Ben Carlson
- An All-Time Bull Market from Ben Carlson
- Trusted Help from a Daily Money Manager from Rick Kahler
- If America’s So Rich, How’d It Get So Sad? from Derek Thompson
- You Just Retired (or Are About to). Now What? from Christine Benz
- 10 Tricks of Financial Predators from Allan Roth
Thanks for reading!
Hi. I'm Mike Piper, the author of this blog. I'm 
