Financial Capacity in an Aging Society

Abstract

In United States, older adults are most vulnerable to impairment and loss of skills and capacity-not only because of effects of Alzheimer's Disease and other related dementias, but also due to normal cognitive aging. The capacity to manage one's affairs, known as capacity, comprises a broad range of conceptual, pragmatic, and judgment abilities, used across a range of everyday settings, that are critical to independent functioning of adults in our society (Marson, 2001; Marson et al., 2000). Financial capacity has been defined in general terms as the capacity to manage money and assets in ways that meet a person's needs and which are consistent with his/her values and self-interest (Marson, Hebert, and Solomon, 2011). Financial capacity represents a broad continuum of activities and skills, which can vary considerably across individuals based on their background and experience (ABA/APA Assessment of Capacity in Older Adults Project Working Group, 2008). For example, skills and experience of a retired investment banker differ enormously from those of a retired school custodian on a fixed income. From a clinical standpoint, capacity may best be conceptualized as a series of domains of activity that each have specific clinical relevance (Marson, 2001; Marson et al., 2000; Griffith et al., 2003). Examples of such domains would include having basic monetary skills, carrying out cash transactions, managing a checkbook and a bank statement, and exercising judgment. This domain-based approach is clinically oriented and consistent with presumed multidimensionality of capacity and its variability across individuals. It is also consistent with legal doctrine of limited competency adopted within most state legal jurisdictions, which recognizes that an individual may be legally competent to carry out some activities and not others (Marson, 2001; Marson et al., 2000; Grisso, 1986). The Financial Capacity of Older Adults: A Growing Problem Although capacity is essential for all community dwelling adults, it is a topic with particularly important implications and urgency for older adults: there is a tremendous and underappreciated financial capacity problem posed by our rapidly growing older adult population. Older adults represent that portion of U.S. population most vulnerable to impairment and loss of skills and capacity, as a result of effects not only of Alzheimer's Disease and related dementias, but also of normal cognitive aging. At same time, older adults hold a disproportionate amount of wealth in United States. Older adults ages 65 and older currently comprise only 13 percent of population (APA, 2011) and 21.4 percent of family households in United States (Pilson, 2011; Laibson, 2011), but hold 34 percent of nation's wealth (Pilson, 2011; Laibson, 2011). This combination of wealth, cognitive decline, and impaired capacity represents a tremendous and growing challenge to our society. Given that overall household wealth in United States in 2009 was estimated at $53.1 trillion, amount of wealth currently held in older adult households amounts to a staggering $18.1 trillion (Laibson, 2011). With continued aging of our society, and tidal wave of Alzheimer's and related dementias building over next few decades (estimated at 14 million persons in United States by 2050), both this percentage and overall older adult wealth will only increase, and issues of capacity in elders will become ever more prevalent and urgent. These changing circumstances also provide an opportunity for rethinking how we as a society plan for future, and how clinicians, social services providers, lawyers, and industry professionals can best serve aging population. …