Losing the ability to manage one’s finances is a common and concerning consequence of dementia, affecting cognitive functions critical to financial decision-making. In New Zealand, approximately 500 people receive a dementia diagnosis each week, underscoring the importance of proactive financial planning to safeguard personal assets and ensure one’s wishes are upheld.
Dementia impairs brain functions related to risk assessment, comprehension of complex information, and recognition of inconsistencies. This can lead individuals experiencing cognitive decline to make poor financial choices, such as agreeing to unsuitable products or signing contracts they do not fully understand. Everyday management of money also becomes challenging, with bills potentially going unpaid, bank accounts neglected, or spending behaviours shifting unexpectedly.
Beyond the natural difficulties posed by cognitive decline, vulnerable individuals may face exploitation. While family members and caregivers often act with good intentions, some may misuse their access to finances or make unwise decisions. Additionally, scammers frequently target those whose judgment is impaired.
Experts emphasize that while it is impossible to render finances completely dementia-proof, early measures can mitigate risks. One key tool is an enduring power of attorney (EPOA) for property, which designates a trusted person to handle financial matters if the individual loses capacity. The EPOA can include specific restrictions on its use and may be activated either immediately or only after confirmation of incapacitation.
Darral Campbell, chief executive of Dementia Canterbury, likens an EPOA to a fire extinguisher: a preparedness measure put in place before a crisis occurs. Establishing this legal instrument while retaining mental capacity is crucial to ensure personal intentions are respected.
In addition to obtaining an EPOA, several practical recommendations can help protect finances:
- Drafting a will to prevent undue influence over its contents during periods of diminished capacity.
- Informing an independent person about significant financial changes for added oversight.
- Simplifying banking arrangements by reducing the number of accounts and avoiding granting access through debit cards and PINs to others, which is generally against bank policies.
- Automating regular payments to prevent missed bills.
- Setting transaction limits and alerts via SMS, email, or banking apps to detect irregular activity, ideally with notifications sent to both the account holder and a trusted individual.
- Exercising caution with joint bank accounts, which grant the co-owner full access to funds; legal advice is recommended before establishing such accounts.
- Maintaining a healthy scepticism towards pressure tactics and urgent sales pitches that could lead to regrettable decisions.
While these safeguards cannot offer absolute protection, they collectively help preserve financial stability and autonomy. The interplay between dementia and financial vulnerability serves as a reminder of the importance of early planning, particularly given the potential for family dynamic changes and evolving scam techniques.
Preparing ahead provides individuals and their families greater security and clarity in managing finances as cognitive abilities decline, reinforcing the value of thoughtful, timely decision-making.