Contact Us: 781-705-6400

New Study Finds Declining Credit Ratings Can Predict Dementia

dementia -financial planning-margolis-bloom-d'agostino-wellesley

The New York Times reported over the weekend about a Federal Reserve Bank of New York and Georgetown University study correlating declines in credit ratings with later diagnoses of Alzheimer’s disease. In fact, declines in credit ratings can be an early warning sign of developing dementia with some people falling behind in paying their debts, such as mortgages and credit card bills, five years before a diagnosis.

The study, “The Financial Consequences of Undiagnosed Memory Disorders,” compared Equifax credit ratings with Medicare beneficiary information for 38 million people between 2000 and 2017. The authors found “on average, deterioration in credit scores and a heightened probability of payment delinquency in the five years prior to an eventual diagnosis of [Alzheimer’s disease and related disorders (ADRD)]. Considering the typical progression of the disease, these findings point to financial consequences of the disease in its earliest stages, when symptoms are typically mild and not widely apparent.”

The study authors believe that their findings in fact understate the problem since many financial issues don’t show up in their data. Other researchers have demonstrated the links between cognitive decline and subsceptibility to scams targeting seniors and risky behavior, such as investing in a single stock or buying an expensive car.

A Predictive Algorithm?

The authors suggest that it may be possible to develop an algorithm based on the information it developed to identify “individuals at risk for ADRD who should receive additional clinical evaluation to facilitate earlier diagnosis.” This, of course, raises serious privacy and implementation questions. If the algorithm spits out a result saying a particular person is at risk, how will they be notified in a way that preserves their confidentiality? What would be the rate of the inevitable “false positives” — the number of people who would be identified as being at risk whose credit ratings dropped for other reasons completely? Would a notice that they may be experiencing the early stages of dementia upend their lives for no good reason?

If we can’t depend on an algorithm, what can we do to protect ourselves and our families from the potential financial effects of cognitive decline?

Taking Protective Measures

The most important steps we can take are those that allow individuals we trust access to our financial information so they can become aware of unusual spending or investment decisions. This can be done by adding them as joint owners on accounts or as co-trustees on trusts. (I prefer the latter because joint accounts actually confers equal ownership to the other person while adding a trustee to a trust does not.) Many investment companies also allow for access to accounts with limited powers. For instance, you may be able to add individuals to your accounts for purposes of viewing them only, without the ability to make trades or disburse funds.

Appointing one or more people you trust on a durable power of attorney will allow them to step in once they become aware that you can no longer manage your finances like you did in the past. Of course, you might not agree with them at the time, especially if your judgment has been impaired by cognitive decline.

The “Ulysses” Clause

This brings us to the “Ulysses” clause pioneered by my friend and colleague, Michael Gilfix, of Gilfix & LaPoll Associates in Palo Alto, California. In an article he wrote for the September 2014 Trusts and Estates Magazine, “Addressing Financial Abuse: Should the bar for protective intervention be lower?,” he describes how when Odysseus was warned about the threat of the Sirens luring passing sailors to their doom by entrancing them with their singing, he had his crew tie him to the mast with orders to keep him tied up until they pass the Sirens’ island, no matter what other orders he might give. (Their ears were plugged with wax so they could not hear the Sirens’ deadly singing.)

Similarly, Gilfix recommends that clients sign a document handing over primary financial responsibility to their co-trustee or agent under a durable power of attorney in the event they engage in unusual activities, such as failing to pay regular bills, paying the same bills multiple times, overdrawing checking accounts, or making substantial and unusual gifts to other people or charities. Any of these and other triggers would implement the agent under the durable power of attorney or the co-trustee stepping in and taking over financial management. A decline in one’s credit rating could also be added to Gilfix’s list.

The need to protect one’s savings as we age has become more important than ever with the virtual disappearance of traditional pensions. As a result, today’s retirees must depend on their savings and must keep them intact. Very few can rely on a monthly check coming in from a former employer.

Newsletter Sign Up

Contact Us

We’ve moved. But not far. Our new address is: 20 William Street, Suite 320, Wellesley, MA 02481

Contact Haley

Contact Steven

Contact Sarah Henry

Contact Michael

Contact Sarah Hartline

Contact Laura

Contact Patricia

Contact Jeffrey

Contact Harry