Advances in brain research are shedding new light on how our minds function. This includes understanding how we process decisions related to finances as well as how our decision-making changes as we age. Taken together, the new knowledge offers an important affirmation of the need to guard against senior financial exploitation and mismanagement.
The Science of Emotions
A Wall Street Journal story this week explained new neuroscientific findings that show a shift in mental activity as brains age. Specifically, older minds focus more than younger ones on blocking out negative emotions and experiences while maximizing positive emotions and interactions. This is referred to as “socioemotional selectivity.”
On one hand, this shift is helpful in providing more general happiness and comfort for older individuals–a better ability to “not sweat the small stuff.” At the same time, the selectivity also works to blind some seniors to warning signs of abuse, mistreatment, or exploitation by others.
One critical aspect of the latest research is that the vulnerabilities in seniors apparently exist well outside of traditional “dementia” issues. In other words, even seniors who are highly intelligent and financially aware, with no signs of past cognitive challenges, may still be more vulnerable to financial errors or abuses.
A neuroscientific study at Yale University recently compared the actions of younger and older investors. They found that investors over the age of 65 (with all other factors held constant) “showed striking and costly inconsistencies’ in their financial actions. Of course, this is not to suggest that anyone over 65 years old is incapable of managing their money prudently or avoiding scammers. However, the general arc of the research is a reminder that there are very real and deep brain processes that affect these matters.
What’s more is that very few individuals appreciate that these risks exist–often leading to avoidance of planning to account for potential problems in the future. After all, middle-aged individuals who are firing on all cylinders in their financial life almost never believe that they will eventually lose their wits. At the same time, because the decline happens very subtly, most are unable to identify that they may have a problem until they have already been struggling for some time. As the WSJ story succinctly explains, “Just when they are the most capable of planning ahead for a time when their judgment might fail, investors are at an age when they’re unlikely to believe that they actually need to plan ahead.”