Financial difficulties can emerge years before dementia symptoms or diagnosis

Managing household finances — retirement savings, insurance, credit cards, day-to-day bills — is hard enough under the best of circumstances. With an aging population, experts are increasingly worried about how older Americans experiencing dementia will manage their money safely.

The research is sobering: The risks of poor judgment, costly mistakes, neglect and vulnerability to financial predators rise sharply with age.

For more, “Marketplace Morning Report” host, David Brancaccio, spoke with Marketplace's senior economics contributor, Chris Farrell. The following is an edited transcript of their conversation.

David Brancaccio: Americans live longer. I mean, how many times do I say that in a month? But what's the prevalence of dementia?

Chris Farrell: OK, so to be really clear here, David, not every older adult develops dementia. I mean, far from it. But the evidence is overwhelming that the risk of dementia rises with age. For instance, there was a recent study, it's from NYU Grossman School of Medicine and Johns Hopkins Bloomberg School of Public Health. And the scholars estimate that the odds of developing dementia reach 4% by age 75 and 20% by age 85, and most of the risk of dementia comes after 85 years of age.

Brancaccio: Alright, one in five people by 85. And for that subset, the chances for money mistakes or financial exploitation rise. You have some numbers?

Farrell: There's this whole cottage industry of researchers, I mean, from all these multiple disciplines. And they found that finances deteriorate among those who are dealing with cognitive decline and eventually dementia. And the economic cost to their wealth? It often shows up, David, six to eight years before dementia symptoms are obvious or there's a clinical diagnosis. So, this recently published study by four researchers, and it builds on earlier studies to explore the reasons behind the documented fall in wealth among those who eventually develop dementia compared to those who don't.

Brancaccio: So, a person who's older and finds their net worth dropping, that could be a flag for future cognitive problems?

Farrell: Absolutely. So, they examine several possible explanations for this widening financial gap. And here's what they rule out: reduced earnings, higher out of pocket medical bills, purposely spending down assets to qualify for Medicaid and rationally spending more to enjoy life before the symptoms worsen. And they also say the intriguing possibility of reverse causation — meaning that the shock of poorer finances is what leads to cognitive decline — isn't that persuasive.

Brancaccio: Is not that persuasive. So, what's a better hypothesis, then?

Farrell: The evidence is overwhelming that impaired financial decision making in the years before a dementia diagnosis is the most plausible reason.

Brancaccio: All right, and there are a lot of stakeholders with the power to help with this, right?

Farrell: Absolutely. Creating safeguards against declining wealth among those with cognitive decline is going to demand initiatives from many parts of society: financial institutions, medical professionals, attorneys and families. That said, the clear message in studies like these is that everyone needs to build a financial plan that anticipates the possibility of developing dementia later in life.