Financial Abuse of the Elderly

Elder financial abuse or exploitation is defined in the Older Americans Act of 2006 as:

“The fraudulent or otherwise illegal, unauthorized, or improper act or process of an individual, including a caregiver or fiduciary, that uses the resources of an older individual for monetary or personal benefit, profit, or gain, or that results in depriving an older individual of rightful access to, or use of, benefits, resources, belongings, or assets.”

In other words, this type of abuse involves taking advantage of an older person for financial gain.

Elder financial abuse is big business. It’s estimated that older adults lose more than $36 billion every year to scams, fraud and exploitation. It’s even more alarming that almost half of that money is lost due to tactics that – while deceptive in nature – are technically legal. With large numbers of Baby Boomers aging into retirement, experts predict the problem is only going to get worse.

The number of seniors of seniors in the U.S. who have experienced some form of financial abuse is estimated to be as high as 37 percent. In other words, if you have three living grandparents or two older parents, there’s a good chance at least one of them has been a victim of financial abuse, and they may not even know it.

The sheer number of financial abuse victims is frightening, but what may be even worse is that the abuse is often carried out by someone close to the victim. One survey found that two-thirds of financial crimes against the elderly are carried out by family, friends or other trusted individuals. The perpetrators of elder financial abuse can include:

• Family members
• Caretakers
• Neighbors
• Friends and acquaintances
• Attorneys
• Banks and other financial institutions
• Health care providers

There are dozens of ways in which elder financial abuse is carried out. Here are some of the more common ways this type of abuse is perpetrated.

Predatory lenders: Older clients are sometimes pressured into taking out reverse mortgages or other predatory loans with high interest rates. It may be against the client’s best interest to take out the loan, but they may be convinced to do so due to high pressure or fraudulent misinformation.

Investments: Senior citizens are popular targets for pyramid schemes and other “get rich quick” schemes.

Caretakers, friends and family members

Power of attorney: Someone who has been granted power of attorney can sometimes abuse that designation in order to acquire money, assets and possessions.

Bank cards or checks: A caretaker who has access to a senior’s bank cards or checks can use them to withdraw money or make fraudulent purchases.

The effects of financial abuse can be extremely negative for a senior. In addition to financial losses, victims may also experience:

• A loss of trust and an increased skepticism of everyone, even trustworthy friends and family members
• Feelings of depression, fear, shame, anger and other negative emotions
• Depleted physical health due to stress or the inability to afford proper care or nutrition
• Alcoholism or other risky and destructive behavior
• Loss of a residence, car or utilities due to inability to make payments
• Dependency on government assistance

Anyone can be a victim of financial abuse, but what makes seniors especially vulnerable? While an age-related decline in cognitive thinking could certainly make some older adults easier targets for abuse, there are other reasons for elder financial abuse.

Wealth: Older Baby Boomers have a median net worth of more than $241,000, and the 50-and-over demographic is responsible for 49 percent of all Consumer Packaged Goods (CPG) sales in the United States. The concentration of wealth in this generation can make them more desirable targets for scammers and thieves.

More trusting nature: MIT conducted a study in which people of various age groups were asked if most people can be trusted. Baby Boomers gave the highest percentage of “yes” answers out of all age groups surveyed. This trusting nature could be attributed to growing up in a more trusting era, and it can point to a reason why a senior might be more likely to fall for a scam.

The notion of seniors being more trusting was backed up by a second study, conducted at UCLA. Participants were shown pictures of different faces and asked if they felt the face was trustworthy or untrustworthy. Once again, seniors gave the highest number of “trustworthy” answers, even for faces that gathered a high response of “untrustworthy” by younger participants.

Further, older participants in the study exhibited less activity in their anterior insula while viewing the faces deemed “untrustworthy” by younger participants. This part of the brain supports interoceptive awareness, or what we commonly refer to as a “gut feeling.” The study results suggest that seniors may not as readily identify a potential risk, such as an untrustworthy person.

Declining financial capacity: Trust level isn’t the only thing that may contribute to an older adult’s vulnerability. There is also research that suggests older adults are significantly worse at making decisions related to their finances. One study conducted at Boston College suggested that a person’s financial literacy test scores decline by 1 percent every year over the age of 60.

Another study found that although the capacity to make financial decisions may decline with age, an individual’s confidence to do so did not. This combination could lead many seniors to remain unaware of their financial vulnerability.

When combined, you have a demographic that on average has wealth, is more trusting of other people, has a less active “gut feeling” and is not as adept at making financial decisions as they once were but maintains confidence in their ability to do so. These factors can all lead to an increased vulnerability to financial abuse.

There are a number of ways in which seniors can better protect themselves from financial abuse.

Remain socially active: Isolation is one thing that can contribute to a senior’s financial vulnerability, as being cut off from the outside world can make it more difficult for others to detect warning signs. An isolated individual may also feel that they lack the resources and relationships they need to feel financially secure.

Avoid joint bank accounts: Some seniors might open a joint bank account so that a family member can more easily make payments or withdrawals on their behalf and help manage their finances. But a joint bank account can also serve as an easy way for theft and abuse to occur.

Don’t give up your home: Particularly when moving into an assisted living facility, an older adult might consider signing over their home to a trusted family member in order to let that person handle the selling of the home. A home can be among a senior’s most valuable assets, however, and it may not be a safe idea to sign the home over to another person, no matter how trustworthy they might be.

Invoke a power of attorney: The risk of financial abuse heightens after a person develops a decreased capacity to make independent financial decisions. Invoking a power of attorney can be one proactive way to prepare for the future of one’s wealth and assets. Seniors can consider getting legal advice to help in this process.

Set up a revocable trust: Placing a senior’s assets in a revocable living trust and naming a fiduciary can be one way to protect against outsiders getting access to any of the senior’s assets that are of significant value.