Dealing with Diminished Financial Capacity

Making sound financial decisions can be a challenge, even when you’re young. But as we age, cognition factors like Alzheimer’s, dementia and other illnesses can diminish our capacity to make good financial decisions. When you lose the ability to make good financial decisions, it’s known as diminished financial capacity, and it’s sometimes a hard thing to face.

Warning Signs

Hopefully, you and your loved ones have a financial (and legal) plan in place in the event of a health decline. However, this is not always the case, so it’s crucial to understand what diminished financial capacity “looks like.”

If you notice an aging parent or loved one with credit difficulties, irrational purchases, inappropriate investments, unpaid bills or other major financial troubles, these could be warning signs that he or she is having a cognitive decline that leads to diminished financial capacity. In this state, a person is more vulnerable to dishonest people who may take advantage of them.

Challenges of Talking About the Problem

Often, older loved ones don’t want to ask for help, or don’t realize there is an issue. How we make financial decisions is frequently a taboo topic of discussion in our society, and it’s even harder to admit that you may have a problem managing your money. Some family members may even deny that there is a problem, while others may simply not know how to broach the subject appropriately.

Communicating about diminished financial capacity can be difficult, so the topic must be approached carefully and with compassion. Your loved one may be embarrassed about his or her need for assistance with financial decisions. Remember, he or she may also be afraid of losing independence or privacy by inviting help in.

How to Approach the Conversation

To effectively communicate and help your loved one with diminished capacity, work together as a family, with all family members who are willing and able. First, get all the information about your loved one’s cognitive decline. There can be many reasons for a cognitive decline, from Alzheimer’s or stroke to grief. Work with a medical professional to figure out what is going on and get your loved one the appropriate physical and emotional help.

Then think of ways to broach the subject. Put yourself in your loved one’s shoes. How would you want to receive help if you were in the same situation? Compassion goes a long way in having your loved one hear your message. Keep your words positive. Show your love and willingness to help. If you are not accustomed to communicating in this way, sometimes writing a letter can help.

What to Do

Based on the level of cognitive decline, he or she may need more help than just making financial decisions. In this case, you will need to coordinate your loved one’s caregiving. If you have a group of siblings, have a frank discussion with one another about dividing up caregiving duties.

If you or someone else has not done so already, put your loved one’s affairs in order by establishing power of attorney and getting advanced medical directives, wills and other important documents together. You may want to consult a financial advisor and an attorney to help.

Keep your loved one safe from financial exploitation. Ask him/her to talk to you before making any major financial decisions. Talk about scams and explain how convincing these con artists can be. Keep a record of people calling your loved one and investigate anyone coming in and out of the home, like caregivers, to keep your loved one safe from scammers.

Getting Support

As you can see, managing someone else’s finances, especially when that person is someone you care about, can be complex and challenging on several levels. (Look for future posts on this topic.) If you are in this position, be sure to get as much help as you need to ensure your loved one’s physical, emotional and financial safety. There are many agencies dedicated to supporting seniors on a variety of levels. Find out as much as you can, and take action immediately. The sooner, the better.   

Wood Smith Advisors, a Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

“Finance Made Simple” blog posts are intended for educational purposes and not for specific advice.  Each person’s situation is different.  Consult your financial advisor for advice relating to topics discussed.

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