Aging brains make us vulnerable to financial abuse, money mistakes

"This is devastating...he believes that Rachel was helping him. She created a dream state and kept him there." - Brett Hall, attorney for Ralph Raines Jr. quoted in Willamette Week (Portland, Ore.)  

By Julia Anderson
​Willamette Week in Portland, Oregon, does a darn good job of supplying its readers with edgy news. The recent article, “A Fortune Felled,” is no exception. Writer Kate Willson tells the story of Ralph Raines Jr. who lost his timber-family fortune to a pack of scammers through what investigators call “sweetheart fraud.”

The fraudsters, a mother and daughter plus other co-conspirators, took between $12 million and $20 million from Raines (and his 80-something father) over several years after “befriending” them. Arrests came thanks to an anonymous tip. But by then most of the money had gone into new cars including a $200,000 Ferrari, lavish trips to Las Vegas, rental property purchases and, as they say, thin air.

The story is all too familiar and raises these questions: What happens to our brains when we get old and why do we lose reasoning capacity that protects us from scammers when we’re younger?

Financial predators show up in many forms. They can be aggressive investment brokers who make a commission every time they sell an annuity or churn an account or caretakers who begin by paying your bills but are soon tapping  checking accounts and selling your house.

Having watched my mother age over the past 20 years before her death earlier this year, I’d say she began to lose it in her mid-80s when two separate brokers sold her annuities, one at $50,000, the other $40,000. In both cases, when questioned later, she did not understand how they worked or why either annuity would benefit her or her heirs. It turns out they didn’t. Meanwhile, both financial advisers earned hefty up-front commissions on the sales. A couple of years later, a family member coerced my mother into writing a $10,000 check to finance a poorly thought-out wrongful firing lawsuit.

Of course, the case went no where. My mother was not senile in any obvious way. She sincerely believed that she could still manage, and with most things such as re-upping a CD investment, she did. Only when pressured did things slip.

In her 90s, she finally sought the help of a bank trust to manage all her assets -- a producing farm and her investments. That allowed her to live her last years in relative peace at the care center in financial security.

Research shows that older women such as my mother are nearly twice a likely to become victims of financial abuse as men, frankly because men die earlier and women are left to fend for themselves.  Family members, friends or neighbors are often the financial abusers.

My mother’s slip-ups were small compared to the Raines’ story.  But every day, every where, the elderly are putting their trust in people who may see them (the elderly person) only as a meal ticket, if not a free trip to Vegas.

 Aging brains lead us to people "who make us feel good"

So what happens to our brains?
New neuroscientific and psychological research shows that as people age “they become more focused on maximizing positive emotions and social interactions,” reports Jason Zweig in a recent Wall Street Journal article on the topic. “Older people become more determined to block out negative experiences. This leads older people to pay more attention to those who make them feel content and comfortable.”

In the Raines case, when investigators confronted him with the harsh facts of his financial abuse, he denied at first that there was a problem and refused to believe he’d been duped.
But wanting to feel positive about those around us as we age is not the only challenge, researchers say.
Our cognitive abilities begin to slip as we move into our 70s and 80s. Older investors, for instance, tend to make simple errors that younger investors would avoid, wrote Zweig.

It may be particularly difficult for those who have made sensible financial decisions throughout their lives to in old age come to terms with a decline in their reasoning capacity. These people may continue to feel confident even as they begin to lose it, experts say.

Robert Willis, an economist and professor at the University of Michigan, has made a study of financial decision-making among the elderly. (click here for his research on the impact of retirement)

In a workshop, Willis points out that we face a “growing complexity of decisions” related to old age. Everything from medicines people take to their health care insurance becomes more complex. Never mind investment decisions and asset management that the elderly must grapple with.

“While people accumulate financial knowledge and skills over their lifetime, at older ages they confront the serious risk of losing these capacities if they acquire Alzheimer’s disease or other type dementia that causes progressive declines in cognition and eventual complete loss of functional capacities,” Willis writes. “This may pose an enormous financial risk to all members of a household.”

Financially vulnerable

Forgetting to pay bills is minor compared with being duped in fraudulent schemes or signing contracts that we don’t understand.

“Regardless of cognitive status, older American are more financially vulnerable than the general population,” Willis underscores in “The Implications of Alzheimer’s Risk for Household Financial Decision-making” co-written with Joanne Hsu of the Federal Reserve Board.

So as we age, how can we gracefully manage our decline into happy old age, free of financial abuse?

The trick is putting a plan in place before that time comes. Who or what organization will manage your assets when you get old? And how do you avoid being scammed?

Here are some tips from the U.S. Department of Labor:
 -- Don't let fear, desperation, or the need to catch up financially push you (or family members) into any hasty investment decisions. In all legitimate investments, higher returns are accompanied by higher risks - risks you may well not want to take as you near retirement. Be wary of anyone who claims they can sell you a product that offers great reward without great risk - a sure sign of a scam.

  - Recognize that anyone can claim to be a "financial consultant” or "investment counselor.” That person may not have the special training, expertise, or credentials necessary to back up the claim. Ask about licensing and professional designations and check them out with securities regulators and any trade groups in which they claim membership.

  - Understand your investments and never be afraid to ask questions. Good financial professionals are never pushy, and they never dismiss your concerns.
  - Don't let embarrassment or fear keep you from reporting suspected investment fraud or abuse.

  - Never judge a person's integrity by how they sound or how they appear. The most successful con artists sound extremely professional and have the ability to make even the flimsiest investment seem as safe as putting money in the bank.

- Monitor your investments. Ask tough questions and insist on speedy and satisfactory answers. Make sure you get regular written and oral reports

Here’s where my advice comes in. Turn to a bank trust department to manage your assets, pay your bills and take care of your finances. Banks are bound by law to take a conservative and professional approach to their customer’s money. They must send you a monthly financial report showing income and outgo. For a small fee (1-2 percent of total assets) a bank trust manager is there to be a gatekeeper, to make sure you can live comfortably and happily in your old age. The challenge is figuring out when you should no longer be in charge. While bank trust may be an answer, it requires the same homework that you would do when investing with a broker. Ask a lot of questions, get references and check out the bank's fees and track record. This is your money, this is your life.

If you are the child or other family member of an aging relative, check in on them regularly. Ask them if there’s anyone new in their life and how they go about paying bills. Meanwhile, we baby boomers should set up a simple plan and stick with it, as recommended by Laura Carstensen, director of the Stanford Center on Longevity. Click here for her profile and for her TED Talk on aging,

It seems that Ralph Raines Jr. did not have a plan or have anyone close to provide honest financial advice. Instead he turned to scammers who made him happy and comfortable as they stole his fortune.
For more:
To report financial abuse contact
http://www.stopfraud.gov/protect-yourself.html
National Council on Aging, 22 tips for avoiding scams & Swindles, click here.
National Center on Elder Abuse, click here.
Elder Abuse: Financial Scams Against Seniors, click here. Nolo Law for All
National Institute of Justice, Financial Exploitation of the Elderly. click here.
Would Your Adult Children Rip You Off? click here.  Bankrate.com
"Why Everything you Think about Aging May be Wrong," WSJ, click here.