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

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  • Joanne W. Hsu
  • Robert Willis

Abstract

The cognitive ability needed to manage finances is a form of human capital. Dementias cause progressive declines in cognition. We analyze how information about decline affects the choice of the household financial decision maker using longitudinal data on older couples. We find that as the financial decision maker's cognition declines, financial management is eventually turned over to the spouse, often well after experiencing difficulties handling money. Couples who control their retirement accounts and are at greatest risk from financial mismanagement are much more likely to shift responsibility to a spouse in response to a diagnosis of memory disease than those with fixed incomes.

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  • Joanne W. Hsu & Robert Willis, 2013. "Dementia Risk and Financial Decision Making by Older Households: The Impact of Information," Journal of Human Capital, University of Chicago Press, vol. 7(4), pages 340-377.
    • Handle: RePEc:ucp:jhucap:doi:10.1086/674105
    DOI: 10.1086/674105
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    2. Fabrizio Mazzonna & Franco Peracchi, 2024. "Are Older People Aware of Their Cognitive Decline? Misperception and Financial Decision-Making," Journal of Political Economy, University of Chicago Press, vol. 132(6), pages 1793-1830.
    3. Pak, Tae-Young & Babiarz, Patryk, 2018. "Does cognitive aging affect portfolio choice?," Journal of Economic Psychology, Elsevier, vol. 66(C), pages 1-12.
    4. Michael S. Finke & John S. Howe & Sandra J. Huston, 2017. "Old Age and the Decline in Financial Literacy," Management Science, INFORMS, vol. 63(1), pages 213-230, January.
    5. Gorman, Emma, 2017. "Schooling, occupation and cognitive function: Evidence from compulsory schooling laws," SocArXiv t647a, Center for Open Science.
    6. Johnston, David W. & Kassenboehmer, Sonja C. & Shields, Michael A., 2016. "Financial decision-making in the household: Exploring the importance of survey respondent, health, cognitive ability and personality," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PA), pages 42-61.
    7. Padmaja Ayyagari & David Frisvold, 2015. "The Impact of Social Security Income on Cognitive Function at Older Ages," NBER Working Papers 21484, National Bureau of Economic Research, Inc.
    8. Piotr Bialowolski & Jing Jian Xiao & Dorota Weziak-Bialowolska, 2024. "Do All Savings Matter Equally? Saving Types and Emotional Well-Being Among Older Adults: Evidence from Panel Data," Journal of Family and Economic Issues, Springer, vol. 45(1), pages 88-105, March.
    9. Anna Conte & Paola Paiardini & Jacopo Temperini, 2024. "Dealing with “Do Not Know” Responses in the Assessment of Financial Literacy: The Use of a Sample Selection Model," IJFS, MDPI, vol. 12(3), pages 1-29, August.
    10. Nicolau Martin‐Bassols & Sonja C. de New & David W. Johnston & Michael A. Shields, 2023. "Cognitive activity at work and the risk of dementia," Health Economics, John Wiley & Sons, Ltd., vol. 32(7), pages 1561-1580, July.
    11. Anek Belbase & Geoffrey T. Sanzenbacher, 2016. "Cognitive Impairment and Social Security's Representative Payee Program," Working Papers, Center for Retirement Research at Boston College wp2016-12, Center for Retirement Research.
    12. Cheuk Hee Cheung & Tansel Yilmazer, 2019. "Wealth Management While Dealing with Memory Loss," Journal of Family and Economic Issues, Springer, vol. 40(3), pages 470-485, September.
    13. Yuan S. Zhang & Elizabeth Frankenberg & Duncan Thomas, 2024. "Education and Adult Cognition in a Low-income Setting: Differences among Adult Siblings," NBER Working Papers 32362, National Bureau of Economic Research, Inc.
    14. Madelaine L’Esperance, 2020. "Does Responsibility for Financial Tasks Influence Credit Knowledge and Behavior?: Evidence from a Panel of US Couples," Journal of Family and Economic Issues, Springer, vol. 41(2), pages 377-387, June.
    15. HanNa Lim & Su Hyun Shin & Melissa J. Wilmarth & Narang Park, 2022. "Who Decides? Financial Decision-Making Among Older Couples," Journal of Family and Economic Issues, Springer, vol. 43(2), pages 310-337, June.

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