Elder financial abuse is a multibillion-dollar problem
With a growing population of aging Americans, financial exploitation against seniors is becoming a widespread and pervasive problem. The National Council on Aging estimates costs of elder financial abuse and fraud range from $2.9 billion to $36.5 billion annually. The rate of financial exploitation is extremely high with one in twenty seniors indicating some form of perceived financial mistreatment. Furthermore, many cases of financial exploitation go unreported and these estimates are likely grossly underrepresented. Analysis suggests that for every 1 self-reported financial exploitation case, 44 cases go unreported, making reported numbers the “tip of the iceberg.”
Financial abuse can take many forms. MedicareAdvantage.com lists dozens of ways in which elder financial abuse is carried out such as scammers impersonating home repairmen, fake charities collecting donations, or email phishing. Seniors are also susceptible to predatory lenders and identity theft, however, the most common perpetrator is not typically an outsider. Almost 60% of the time it is family member, friend, neighbor, or a paid caretaker. These trusted individuals take advantage of the senior’s cognitive decline and diminished capacity.
What Makes Seniors More Vulnerable To Financial Abuse
Academic research indicates that as we age our confidence in our financial ability stays constant, while our financial literacy drops off dramatically. Meaning, even if we feel perfectly capable of handling our financial affairs we may be slowly losing the ability to make prudent financial decisions. “Financial judgment can start to falter before normal cognition does, regardless of whether the person was savvy with money when they were younger. In other words, it can happen even when the person seems normal,” says Dr. Mark Lachs, a geriatrician at Cornell University, in “Age-Associated Financial Vulnerability: An Emerging Public Health Issue.”
Another reason why older adults are disproportionately vulnerable to fraud could be a lower warning signal when evaluating trustworthiness. Studies found that older participants exhibit less activity in their anterior insula while viewing “untrustworthy” faces than younger participants. This part of the brain supports interoceptive awareness, or “gut feelings”, and the results suggest seniors may not easily identify a potential risk, such as an untrustworthy person. A diminished “gut” response to cues of untrustworthiness may contribute to older adults’ vulnerability to fraud.
Other than age-related decline in cognitive thinking, Americans 60 years and older possess more than half of all U.S. household wealth and are more likely to have life insurance. Furthermore, fewer employers provide pensions than ever before leaving people to manage their own retirement savings. This makes seniors vulnerable to bad actors such as predatory lenders, pyramid schemes, or fiduciaries that use these resources for personal benefit.
The combination of declining financial ability while still maintaining confidence to do so, a less active “gut feeling”, the concentration of wealth along with them often living in social isolation makes this demographic desirable targets for scammers and thieves.
The Human and Economic Toll from Elder Financial Abuse
The increasing toll of elder financial abuse is estimated to affect more than 5 million people and cost billions of dollars a year. Emerging evidence indicates that
prevention could save lives and prevent illness, injury, and suffering, while also yielding major cost savings. Those who suffer financial exploitation die at a rate three times faster than those who have not been abused. In addition, one in ten financial abuse victims will turn to Medicaid as a direct result of their own money being stolen from them, creating a public health crisis. “Financial exploitation causes large economic losses for businesses, families, elders and government programs, and increases reliance on federal health care programs such as Medicaid,” warned a 2014 elder justice report.
How Seniors Can Protect Themselves
It is important to look for warning signs of financial abuse, but it is easier to work with your aging loved one before cognitive decline starts. In addition, start thinking about building a plan for yourself to safeguard your own wealth.
- Set up a revocable trust
- Invoke a power of attorney
- Don’t give up your home
- Avoid joint bank accounts
- Remain socially active
- Know the scams to look for
- Report Suspected Financial Abuse
Empower Brokerage is dedicated to helping you educate your clients on the insurance they need to get the most out of life. Whether it’s through webinar training, one-on-one calls, seminars, or marketing plans. We want you to be successful. Give us a call if you have any questions 888-539-1633.