Diminishing capacity is a very complex topic. It may happen quickly or be a long, slow decline in the ability to make effective decisions. The risks can be devastating, impacting a person’s health and financial well-being. Emerging research indicates that issues managing finances could be an early warning sign of a pre-dementia or dementia diagnosis. Families need to be aware of these early financial warning signs and financial risks so they can plan for diminishing capacity and effectively manage the associated risks.

In conversation with a colleague last week, we were discussing problems with financial issues and early indicators for memory disorders such as mild cognitive impairment, often a precursor to a dementia diagnosis. As the CEO of a home care and dementia services company, Steve Kelly is keen to educate clients on potential risks. He decided to explore the topic further with the assistance of an AI search engine. (More on that topic in a later blog). He shared an excellent educational tool for discussing pre-dementia financial losses and risks with clients, the April 2024 report, “Before the Diagnosis: Dementia’s Early Financial Toll,” from the symposium hosted by the MIT Age Lab and AARP (American Association for Retired Persons).[1]

Symposium organizers developed a visual metaphor of a room with a leaky pipe overhead as a way to illustrate the causes of financial losses in the pre-dementia state. The water being lost from the leaky pipe represented the cumulative financial losses. Participants, like family members, were initially unclear about the source of the leaks. However, through discussions, they concluded that the losses from the “leaky financial pipeline” fell into two broad categories: rising costs and falling incomes, termed unavoidable costs, and changing financial behaviours and management, termed avoidable costs. [2]

Continuing with the leaky financial pipeline metaphor, the unavoidable losses that impacted household income were factors such as the following:

• Individual or family income loss due to pre-diagnosis symptoms
• Increased healthcare expenditures
• Increased care expenditures
• Increased living expenditures.

On the other hand, the avoidable losses or factors that could be actively managed to minimize financial losses were the following:

• Financial mismanagement of income
• New spending patterns
• Scams or fraud by strangers
• Exploitation by friends or family.

The leaky financial pipeline metaphor is a valuableframework to help families understand the costs of dementia and pre-dementia circumstances, as well as the financial risks associated with not recognizing early warning signs.

In a previous blog, I mapped some of the more obvious symptoms of pre-dementia, along with the early financial warning signs, to illustrate what families should be looking for. Using the leaky financial pipeline metaphor discussed above, the examples noted below are all avoidable factors that should be actively managed to minimize financial losses.

1. Memory loss

Declining memory, especially short-term memory loss is the most common symptom.

Example: A person has been meticulous about paying their personal taxes and property taxes on schedule. Now, a family member sees regular late payment notices.

2. Difficulty performing familiar tasks

We do some tasks without thinking, such as the steps in preparing a meal.

Example: Previously, a person has used online banking to pay multiple bills each month. The person now misses monthly payments and sometimes duplicates payments.

3. Problems with Language

The person may forget or substitute words, making it more difficult to understand spoken and written language. They may also have trouble following a conversation.

Example: A noticeable change in understanding discussions around financial statements or becoming more withdrawn when talking about money or bills.

4. Poor or Decreased Judgement

A person may decide to dress inappropriately for the weather or give large gifts to a person they hardly know.

Example: An elderly, vulnerable gentleman offers a caregiver a large sum of money after he hears her son is having difficulty paying his school tuition.

5. Problems with Concentration, Planning or Organizing

A person may have difficulty with making decisions and identifying and solving problems.

Example: A client takes out an unusual sum of money one day and goes back again a few days later and takes out the same sum of money. A few days later, he does it again.

6. Misplacing things

Anyone can misplace their keys; however, a person with a memory disorder, such as dementia, will not only misplace them often but also put them in an unusual place.

Example: A client called his sister several times one a week to report that his credit card and debit card were lost, and he could not go out to lunch with his friends. After a thorough search, the cards were found in the freezer.

In summary, early financial warning signs and financial risks can be spotted years before a pre-dementia or dementia diagnosis is made. We have discussed a framework families can use to consider financial warning signs and risks. And we have revisited some of the avoidable factors that families can help manage to minimize financial losses. These early financial warning signs and risks are a crucial part of planning for diminishing capacity to protect a vulnerable family member. A following blog will explore ways to discuss this information with family members.

[1]  https://www.aarp.org/content/dam/aarp/ppi/topics/work-finances-retirement/financial-security-retirement/dementias-early-financial-toll.doi.10.26419-2fint.00350.001.pdf

[2] Ibid., p.9