Frauds, scams and financial abuse, especially against senior citizens, are increasing. They’re also drawing more attention from researchers and law enforcement. Two conclusions stand out from all this attention. One conclusion is that many people who think they are unlikely to be victims really are at risk. Another conclusion is that it is fairly easy to protect yourself.
In the last few years I’ve studied a lot of the research about frauds and scams. I’ve concluded there is one best way to reduce dramatically the probability that either strangers or people close to you will take you advantage of.
The conventional wisdom is that older people are more likely to be victims of financial scams, fraud and abuse because of reduced cognitive functions. Research indicates that as the brain ages, it isn’t able to process some types of information as well or as rapidly as it once did. Some studies conclude that on average cognitive function peaks around age 35. A study from the Brookings Institution concluded that the peak age for making financial decisions on average is 53.
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Reduced cognitive function isn’t the same as developing dementia or Alzheimer’s disease. That misunderstanding is what deludes some people into thinking they aren’t likely to be taken advantage of. Reduced cognitive function means the brain isn’t as nimble as we age, just as our eyes and ears aren’t as sharp. The lower cognitive function makes older people susceptible to frauds, scams and abuse. To be less vulnerable, the conventional wisdom says, we have to find ways to compensate for reduced cognitive function.
But there are problems with this line of thought.
Different people age at different rates. Some people in their 60s and 70s are just as sharp as they were in their 30s. Others have reduced cognitive function at younger ages.
Also, fraud victims are in all age groups. Older people are targeted more, perhaps because on average they have more money than younger people. But younger adults functioning at high levels also fall prey to scam artists or suffer financial abuse.
There’s some research that concludes as people age they become more open and trusting. Some researchers believe that’s because the brain changes in some people as they age. Other research shows that in the post-middle age years people are more likely to be content and optimistic, and that could make them less likely to be suspicious of others.
An advantage to aging is that we gain experience that allows us to develop a bank of information we didn’t have when we were younger. This experience can be called wisdom. It’s available to offset a decline in cognitive function to avoid bad financial decisions. To use it, all that’s needed is to make decisions more slowly and thoughtfully.
Yet, newer research found that older people with no signs of changes in their brain or reduced cognitive functions still were victims of financial fraud and abuse.
That leads us to one factor that seems consistent among fraud and abuse victims, regardless of age and cognitive ability.
The victims tend to have some level of social isolation and even loneliness. In particular, they don’t discuss their finances or financial decisions with people who are close to them and trusted. Or they have these discussions with only one person and no one else, and that one person takes advantage of them. In fact, some research says that over half of fraud and abuse losses were caused by a relative or friend.
People, especially retirees, need a social support network. They need people with whom they can discuss important matters and ideas. It’s important to have more than one person you can discuss important financial decisions with. You want to avoid isolation, because that seems to be more of a hallmark of financial fraud than mental decline or other factors.
One good suggestion is to form of team of at least four trusted people. They should know about your finances and be consulted before all significant decisions. Above all, avoid making decisions in isolation.
It’s possible there will come a time when someone else will have to be in charge of or help with your finances. You need to identify this person (or persons) before there’s a need. Create a power of attorney naming this person as your agent and set them up as the successor trustee of your living trust, if you have one.
You want to have your team in place well before that time, so everyone will continue to be involved with your financial decisions and there will be checks and balances.
If you think you don’t have enough money to build a team of professionals (attorney, accountant, insurance agent, financial planner), then form a group of reliable friends and relatives.
Isolation and loneliness are widespread among older people. It’s important that you maintain and build social contacts through the years, and you should have people with whom you can discuss money matters.
In all the research on frauds and scams, this is the one consistently effective preventive measure.
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