The importance of financial capacity awareness to help protect investors from financial exploitation.

The following is a guest blog post by Angela Ghesquiere, Ph.D., MSW. 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. 

Vulnerability to financial exploitation is affected by many factors, including low social support, poor physical health, cognitive impairment, and requiring assistance with daily activities. Vulnerability is also affected by impaired financial capacity; there are indications that older adults with low financial capacity are less aware that financial exploitation is occurring (Stiegel, 2012).

But what is financial capacity? Most generally, it is the ability to manage finances in keeping with one’s values and/or self-interest (Flint, Sudore, & Widera, 2012; Marson & Hebert, 2008). However, there are many different aspects of financial capacity (Lichtenberg, 2015; Pinsker, Pachana, Wilson, Tilse, & Byrne, 2010). It can include the ability to carry out specific financial tasks such as counting money accurately, budgeting, writing checks and balancing checkbooks, paying bills, and monitoring income. It can also include an ability to describe financial concepts, like inflation or interest rates. Quality of judgment around finances is another aspect of financial capacity – whether judgments are made in one’s best interest and in keeping with existing values. Decision-making ability around finances is yet another aspect of financial capacity. Components of financial decision-making ability include: choice (the ability to make any choice about a financial transaction/situation), understanding (the ability to understand information about a financial transaction/situation and the choices connected to that information), appreciation (the ability to understand the consequences of different financial choices), and reasoning (the ability to reason and think logically about different financial choices) (Appelbaum & Grisso, 1988). Any aspect of impaired financial capacity has the potential to increase vulnerability to financial exploitation.

Financial capacity, in all its aspects, often becomes impaired in the context of Alzheimer’s Disease or a related dementia. Capacity can also be affected by a severe mental illness, an intellectual or developmental disability, or a medical condition like a traumatic brain injury. Regardless of the cause of impaired financial capacity, it is important to note that a person can have impaired capacity in some areas, but not in others. For example, they can still balance a checkbook or manage a bank account, but their overall judgement around financial decisions changes. Or, they can no longer understand broad financial concepts, but can express preferences or make decisions around concrete financial tasks. Moreover, financial capacity can both change over time or stay stable. In the context of a progressive dementia, like Alzheimer’s Disease, financial capacity often declines over time. On the other hand, some people – because of educational history, life experiences around finances, lifelong developmental disabilities or mental health conditions, or other factors – may never have had high financial capacity. Whenever possible, a person’s history of financial decisions and management should be considered when assessing financial capacity.

Because financial capacity has so many aspects, assessing a person’s financial capacity can be challenging. Typically, psychiatrists, psychologists, or gerontologists assess capacity based on interviews with the person being evaluated and the people close to them, neuropsychological tests, and observations of performance financial tasks. There are also several standardized measures of financial capacity, which my colleague Dr. Jason Burnett and I recently reviewed. These include the Financial Assessment and Capacity Test (FACT) (Black, Ross, Flanagan, Rabheru, & Breiter, 2007), the Financial Capacity Instrument-Short Form (FCI-SF) (Gerstenecker et al., 2015; Marson et al., 2014), the Financial Competence Assessment Inventory (FCAI) (Kershaw & Webber, 2008), the Hopemont Capacity Assessment Interview (HCAI) (Edelstein, 1999), the Lichtenberg Financial Decision Rating Scale (LFDRS) (Lichtenberg et al., 2016; Lichtenberg, Stoltman, Ficker, Iris, & Mast, 2015), and the Semi-Structured Clinical Interview for Financial Capacity (SCIFC) (Marson et al., 2009). Most of these measures are administered by a clinician, but a few are completed by the person being assessed or their caregiver. Different measures consider different aspects of financial capacity, including specific financial skills (like the ability to balance a checkbook), knowledge of finances, and overall financial judgement.

Determinations of financial capacity can impact a person’s support needs, both informally and formally. For example, a power of attorney might be put into place, or a representative payee for Social Security and/or SSI payments might be assigned. Or, if a court determines that a person does not have financial capacity and a power of attorney is not already in place, the court could assign a guardian/conservator to handle finances for them.

There is much work to be done in the field of financial capacity, including standardizing definitions. It is also important that all professionals working with older adults have some understanding of financial capacity, and refer those who are showing indications of limited financial capacity to specialists who can do a complete assessment. Awareness of financial capacity can help prevent the risk of financial exploitation and its many psychological, health and financial consequences.

Angela Ghesquiere, Ph.D., MSW, is Program Manager of the Brookdale Center for Healthy Aging at Hunter College, The City University of New York (CUNY).

References:

Appelbaum, P. S., & Grisso, T. (1988). Assessing patients’ capacities to consent to treatment. N Engl J Med, 319(25), 1635-1638. doi: 10.1056/NEJM198812223192504

Black, E. L., Ross, T. J., Flanagan, T., Rabheru, K., & Breiter, H. J. (2007). A Financial Assessment & Capacity Test (FACT) for a psychogeriatric population: Development and concurrent validity. Research Insights of the Regional Mental Health Care, London/St. Thomas, 4(5), 1-23.

Edelstein, B. (1999). Hopemont Capacity Assessment Interview manual and scoring guide. Morgantown, WV: West Virginia University.

Flint, L. A., Sudore, R. L., & Widera, E. (2012). Assessing Financial Capacity Impairment in Older Adults. Generations-Journal of the American Society on Aging, 36(2), 59-65.

Gerstenecker, A., Eakin, A., Triebel, K., Martin, R., Swenson-Dravis, D., Petersen, R. C., & Marson, D. (2015). Age and Education Corrected Older Adult Normative Data for a Short Form Version of the Financial Capacity Instrument. Psychol Assess. doi: 10.1037/pas0000159

Kershaw, M. M., & Webber, L. S. (2008). Assessment of financial competence. Psychiatry Psychology and Law, 15(1), 40-55. doi: Doi 10.1080/13218710701873965

Lichtenberg. (2015). A New Person-Centered Approach to Financial Capacity Assessment in Older Adults. Archives of Clinical Neuropsychology, 30(6), 528-528.

Lichtenberg, Ficker, L. P., Rahman-Filipiak, A. M., Tatro, R. B., Farrell, C. M., Speir, J. J. M., . . . Jackman, J. D. J. M. (2016). The Lichtenberg Financial Decision Screening Scale (LFDSS): A new tool for assessing financial decision making and preventing financial exploitation. J Elder Abuse Negl, 28(3), 134-151. doi: 10.1080/08946566.2016.1168333

Lichtenberg, Stoltman, J., Ficker, L. J., Iris, M., & Mast, B. (2015). A Person-Centered Approach to Financial Capacity Assessment: Preliminary Development of a New Rating Scale. Clin Gerontol, 38(1), 49-67. doi: 10.1080/07317115.2014.970318

Marson, & Hebert, K. R. (2008). Financial capacity. In B. L. Cutler (Ed.), Encyclopedia of psychology and the law (Vol. 1, pp. 313-316). Thousand Oaks, CA: Sage Publications.

Marson, Martin, R. C., Wadley, V., Griffith, H. R., Snyder, S., Goode, P. S., . . . Harrell, L. E. (2009). Clinical Interview Assessment of Financial Capacity in Older Adults with Mild Cognitive Impairment and Alzheimer’s Disease. Journal of the American Geriatrics Society, 57(5), 806-814. doi: 10.1111/j.1532-5415.2009.02202.x

Marson, Triebel, K. L., Gerstenecker, A., Martin, R. C., Edwards, K., Pankratz, V. S., . . . Petersen, R. C. (2014). Detecting declining financial skills in preclinical Alzheimer’s disease: The Financial Capacity Instrument-Short Form. Paper presented at the 10th annual conference of the International Society for CNS Clinical Trials and Methodology, Boston, MA.

Pinsker, D. M., Pachana, N. A., Wilson, J., Tilse, C., & Byrne, G. J. (2010). Financial Capacity in Older Adults: A Review of Clinical Assessment Approaches and Considerations. Clin Gerontol, 33(4), 332-346. doi: 10.1080/07317115.2010.502107

Stiegel, L. A. (2012). An overview of elder financial exploitation. Generations-Journal of the American Society on Aging, 36(2), 73-80.