Dementia Risk and Financial Decision Making by Older Households: The Impact of Information.

TitleDementia Risk and Financial Decision Making by Older Households: The Impact of Information.
Publication TypeJournal Article
Year of Publication2013
AuthorsHsu, JW, Willis, RJ
JournalJournal of Human Capital
Pagination45
Date Published2013 Apr 01
ISSN Number1932-8575
KeywordsDecision making, Dementia, Finances, Older Adults
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 in a novel application of survival analysis, 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 percent for couples who control their retirement accounts, like 401(k) accounts, relative to those who passively receive retirement income. This finding 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.

DOI10.2139/ssrn.2339225
Alternate JournalJ Hum Cap
Citation Key8946
PubMed ID25525476
PubMed Central IDPMC4267321
Grant ListP01 AG026571 / AG / NIA NIH HHS / United States
U01 AG009740 / AG / NIA NIH HHS / United States