Dementia risk and financial decision making by older households: the impact of information

Joanne Hsu and Robert Willis

No 2013-45, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The knowledge and reasoning ability needed to manage one's finances is a form of human capital. Alzheimer's disease and other dementias cause progressive declines in cognition that lead to a complete loss of functional capacities. In this paper we analyze the impact of information about cognitive decline on the choice of household financial decision-maker. Using longitudinal data on older married couples, we find that as the financial decision maker's cognition declines, the management of finances is eventually turned over to his cognitively intact spouse, often well after difficulties handling money have already emerged. However, a memory disease diagnosis increases the hazard of switching the financial respondent by over 200% for couples who control their retirement accounts (like 401ks) relative to those who passively receive retirement income. This is consistent with a model of the value of information: households with the most to gain financially from preparation are most responsive to information about cognitive decline.

Date: 2013
New Economics Papers: this item is included in nep-age and nep-dem
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Journal Article: Dementia Risk and Financial Decision Making by Older Households: The Impact of Information (2013)
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