Financial Literacy: A Way to Address the Problem of Financial Exploitation?

The following is a guest blog post by S. Duke Han, PhD, ABPP-CN. This post is part of SIFMA’s “Protecting Senior Investors” blog series, raising awareness and sharing information to help prevent elder financial exploitation. See our full series here

Adults over the age of 65 hold about a third of the nation’s wealth, and this proportion will increase as our society continues to grow older. While many older adults will reap the benefits of funds painstakingly accumulated over a lifetime of hard work, some will fall victim to scam and fraud and suffer a disastrous loss of financial independence. Financial exploitation of older adults is a serious problem that can have far-reaching repercussions, negatively affecting not only the victim, but also family members, caregivers, and their communities.

Cognition can decline in old age. As discussed in a previous Pennsylvania+Wall post, some older adults may experience a decline in certain cognitive abilities that may lead to a greater potential for financial exploitation. However, declining cognitive abilities do not explain all cases of scam and fraud. There are surprisingly few resources available to better comprehend this problem, and the reasons why some older adults may be at risk continue to be poorly understood.

What can be done to address this problem? Understanding the problem is the first step to addressing the problem. Therefore, research is a key component of the solution. In a series of studies at the Rush Alzheimer’s Disease Center led by my colleague, Dr. Patricia Boyle, decision making has been examined in relation to multiple factors, such as declining cognitive abilities, internet use, and mortality. These studies have significantly increased our understanding of the problem, and have even highlighted a potential protective factor.

Financial literacy may help. One factor that appears to be linked to better financial decision making in old age is financial literacy. We define financial literacy as “the ability to understand, access, and utilize information in ways that contribute to optimal financial outcomes.” Not only is greater financial literacy associated with better financial decision making in older adults, but we have found using neuroimaging methods that it is associated with greater structural and functional connectivity between important brain regions, even after considering the effects of cognitive ability. This is encouraging because financial literacy is an ability that could be improved at any age, and therefore it represents a potentially modifiable protective factor against financial exploitation in old age.

Future directions. We continue to strive to understand this important problem. Our work has pointed to the importance of potential racial differences in decision making in old age, and how these may be linked to contextual factors that may be ultimately intervened upon. At USC, we will soon begin to study older adults who have been victims of scam and fraud using qualitative and neuroscience methods in a study we are calling the Finance, Cognition, and Health in Elders Study, or FINCHES. Our hope is that in time, as our understanding of the problem increases, our ways to intervene might also increase, until financial exploitation of older adults becomes a problem of the past.

Dr. Duke Han is a diplomate of the American Board of Professional Psychology in clinical neuropsychology, Director of Neuropsychology in the Department of Family Medicine, and an Associate Professor of Family Medicine, Neurology, Psychology, and Gerontology at the Keck School of Medicine of the University of Southern California.