Before people show symptoms or are diagnosed with Alzheimer’s disease or a related disorder (“ADRD”) their spending, borrowing, and management of money changes. Economists and medical experts at the Federal Reserve Bank of New York and Georgetown University examined Medicare records with data from credit bureaus, looking at borrowing behavior in the years before and after a diagnosis of ADRD.

Credit scores among people who eventually develop dementia fall years before their disease is diagnosed. A year before diagnosis, these consumers were 17.2 percent more delinquent on mortgage payments than before. Another 34.3 percent increased delinquency on their credit card bills. The study evidenced consumers falling behind on their debts five years before diagnosis.

“The results are striking in both their clarity and their consistency,” said Carole Roan Gresenz, a Georgetown University economist who was one of the study’s authors. Credit scores and delinquencies, she said, “consistently worsen over time as diagnosis approaches, and so it literally mirrors the changes in cognitive decline that we’re observing.”

The research documents how decision-making deteriorates long before a diagnosis is made or even suspected. People starting to experience cognitive decline miss payments, make impulsive purchases or make risky investments with greater frequency than before ADRD. Contrary to the common view that older consumers are cautious with their finances, risk tolerance changes. The diversified financial portfolio gives way to some stock that someone recommends.

People in the early stages of the disease are also vulnerable to scams and fraud. Dr. Lauren Hersch Nicholas, from Johns Hopkins University, who was not involved in the New York Fed research, found that people likely to develop dementia saw their household wealth decline in the decade before diagnosis according to a 2023 study.

The issue grows as the American population ages. With age, dementia and poor judgment increase. The New York Fed study estimates that approximately 600,000 delinquencies will occur over the next decade as a result of ADRD.

The data only includes information from credit reports. Of course there are other financial problems beyond late payments.

We had a client placed in memory care. As the family prepared the home for sale they discovered traffic citations, parking tickets, unpaid charge card statements, and ATM withdrawal all hidden years before they were aware of the problem.

Another client had been noticing his own memory problems. The family realized it was more than memory when he went out for a drive and returned home with a new BMW. Others had seen the changes besides memory such as free spending and aggressive investment trades, but said nothing until the ADRD diagnosis.

The study noted that the financial effects predate the costs associated with the disease, such as the need for long-term care.

Similar studies had been conducted, but the scale of this one was enormous. It accessed the health and financial data on nearly 2.5 million older Americans with chronic health conditions, roughly half a million of whom were diagnosed with ADRD. The records had all individual identifiers deleted before combining the two sets of data without access to individual details.

The amount of information allowed researchers to break it down in greater detail than in the past. The study notes that credit data exists for 250 million adults in the United States. This data is created and updated continuously and for most, from early adulthood to the end of life.

The researchers hope that the data will eventually allow them to develop an algorithm that can identify people who might be suffering from impaired financial decision-making associated with ADRA. The unresolved question is who might access such information and how it will be used. For example, beyond “payment delinquency, early stage ADRD may affect new account openings, debt accumulation, credit utilization” and other credit usage that can be identified.

Thus it is important to consider incapacity planning many years in advance of possible impairment. Part of the plan is not simply having good powers of attorney or trusts or other formal support.

In our estate planning we encourage our clients to involve their medical and financial agents in their planning. We offer family meetings (with a big definition of family) for all clients in the estate planning process. We encourage that trusted family members and friends continue this process by participating in our continuation strategy, the Protected Partners Program.

Involvement in the planning does not necessarily mean knowing who gets what and how much. But knowing you have a plan, how it basically works and what is your expectation of your supporting personnel is critical for any good plan.

https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1106.pdf