No cheques and balances

“THE older the wiser” may ring true for much of life, but not for our ability to handle money.

Studies suggest financial decision-making ability tends to reach its peak in a person’s mid-50s, after when deterioration sets in. “Age-friendly” banks are beginning to learn how to protect vulnerable older customers.

The most dramatic forms of age-related mental deterioration are neurodegenerative diseases, like Alzheimer’s. But even “normal” ageing can cause cognitive change. Financial-management skills are often early casualties, because they demand both knowledge and judgment.

Older people are more likely to struggle with day-to-day banking and are more susceptible to poor investment decisions. They are also more vulnerable to fraud or to financial exploitation, often by relatives. In 2010 the over-65s in America made up 13% of the population but had over a third of the wealth. British pensioners became especially vulnerable when reforms in April 2015 allowed them to withdraw savings previously locked up. Newspapers fretted that people would splurge their pensions on Lamborghinis. A greater concern should have been that they became easy prey for scammers. By March 2016 cold-callers had approached more than 10m people about their pensions, according to Citizens’ Advice, a charity.

It is difficult to monitor financial abuse, because victims rarely report it. True Link Financial, a financial-services firm, estimates annual losses in America from financial exploitation and abuse of the elderly at between $3bn and $37bn. In Britain the Financial Conduct Authority has issued warnings about investment-fraud schemes, coaxing the elderly into trading their savings for shares, wine or diamonds (which never arrive).

The older brain seems more susceptible to “too good to be true” scams, from lotteries to dating schemes. According to the “Scams Team” at Britain’s National Trading Standards, a consumer-protection body, the average age of victims of mass-marketing scams is 75. Louise Baxter, the team’s manager, says cognitive decline in older people is a risk factor that criminals exploit, and the dangers are likely to rise in tandem with the incidence of dementia. Phil Mawhinney, from Age UK, a charity, says people living alone, as half of Britons over 75 do, are more likely to be befriended by a fraudster. So-called “sucker lists” of easy targets circulate among criminals.

Banks have been slow to respond, at first seeing these risks as purely a matter for customers. (As one manager puts it, they “have the liberty to make dumb financial decisions.”) Most “age-friendly” measures have focused on physical limitations (such as talking ATMs for the blind) or helping people get online. However, many banks are recognising cognitive decline as their problem, too. Barclays, a British bank, uses voice recognition to help customers who have trouble with passwords. Banks are training staff in how to spot dementia and signs of financial abuse. First Financial Bank, in America, gives staff who uncover a scam a “Fraud Busters” pin.

And better ways to identify fraud are popping up: algorithms can help staff detect changes in spending patterns. Barclays used data from old cases to pinpoint 20,000 high-risk customers, whom it monitors and advises.

The trickiest issue for banks, ethically and legally, is how and when to act on concerns over a client’s ability to manage money. The last-resort measure, most commonly used for the incapacitated, is a power of attorney, usually given to a family member chosen in advance. But this can put people at risk of opportunistic relatives. It may also curtail autonomy too severely.

Banks are experimenting in this grey area, for example by giving relations “read-only” access to accounts, so they can monitor payments, or by allowing the bank to delay a payment and contact advisers if it is worried. A limited form of power of attorney, with authorisation for only certain payments, is also emerging.

Much of the financial damage done by cognitive decline results from late detection of problems. A decline in someone’s financial skills can be an early warning of dementia or other problems. Jason Karlawish, an expert on Alzheimer’s at the University of Pennsylvania, thinks banks—and their technology—are uniquely placed to identify older people who are at risk and refer them to doctors or social workers. He coined the phrase “Whealthcare” to describe how looking after people’s money can give insights into their health. “If you do it right, I think customers will like it,” he adds. “Nobody wants to lose their money and certainly not their brain.”