Financial abuse of senior citizens has been estimated to cost its victims $2.9 billion a year. It is hard to estimate the scope of the problem, as financial fraud is underreported due to embarrassment, hopelessness, or the victims' lack of awareness. With new, detailed financial data collected from family caregivers of older Americans, however, a study has now estimated that the problem is over ten times worse than previously thought, and that 37% of seniors are affected by financial abuse in any five-year period. Read on to see how bad the problem is, the surprising factors that put your loved ones at risk, tips to make sure your loved ones are safe, and more ways to educate yourself.
Financial abuse of senior citizens
True Link Financial, a fraud protection company for seniors, worked with experts at the Financial Fraud Research Center at Stanford to estimate the cost of financial abuse of elder Americans using survey responses from 467 family caregivers from the past five years. Elder financial abuse is defined as "any time that someone took financial advantage of an older adult in a way that would not have been possible when the senior was younger."
Unsurprisingly, they found that criminal fraud is a big problem, with 44% of seniors reporting being targeted over the past five years and 8% losing money to criminal fraud. This costs seniors an estimated $13 billion a year overall, with an average five year loss of $13,100.
A second problem is caregiver abuse, which costs seniors an estimated $6.5 billion a year. This is theft or fraud perpetrated by a family member or other trusted caregiver, and includes outright theft, rewritten wills, and borrowing money from seniors hoping they will forget. The typical average theft in this case -- $27,000 -- is larger than the other types of financial abuse, but happens far less often.
The biggest problem
The biggest problem, though, is questionably legal financial exploitation. This costs seniors an estimated $17 billion a year. The study defined financial exploitation as "when misleading or confusing language is used -- often combined with social pressure and tactics that take advantage of cognitive decline and memory loss -- to obtain a senior's consent to take his or her money." I say questionably legal as this is exploitation that works within the letter of the law, while taking advantage of older people. Beyond a certain point it is illegal to deceptively profit from the infirmity of an elderly person. Examples include:
- Misleading financial advice, hidden fees, and/or boiler room tactics used by brokers
- Unwanted subscriptions or third-party renewal offers for subscriptions already possessed
- "Snake oil" supplements, anti-aging products, dietary products, and weight loss products
- Excessive requests for donations to charities
- Hidden shipping and handling charges
- Work-from-home businesses
While in many cases the losses are small, this is the most widespread of the three, with victims losing on average of $2,700 over the past five years. That might not seem like much, but remember that the median 65-74 year old only has $150,000 saved, and is living off of just $1,300 a month from Social Security benefits.
Besides the financial costs, all of these forms of financial abuse have non-financial effects on seniors and their caregivers as well. For seniors affected, 40% reported non-financial costs, including depression, anxiety, loss of independence, and in the worst cases loss of homes and other major assets. For caregivers of those affected, 28% reported stress dealing with the financial losses and 18% reported increased conflict with loved ones because these issues.
Surprising factors that put seniors at risk
Everyone assumes that those most at risk of financial abuse are the very old, widows, and those with memory loss. However, the study found this is not the case.
While the very old and those with significant memory loss are most vulnerable to financial abuse, they are also the most likely to be the least exposed to it. As a result, they are less at risk than you would think.
Those most at risk are young seniors, well-educated seniors, and those living in urban areas. This is because, while they may be less vulnerable, they are much more likely to be exposed to lots of financial abuse risk. Second, young seniors are most at risk because they are least likely to recognize they have a memory loss problem or notice small declines in their judgement.
Other surprising factors that put seniors at risk:
- Seniors described as "extremely friendly" lose four times as much to elder financial abuse than the average senior.
- Seniors described as financially sophisticated lose more to fraud than those less comfortable with their finances.
- Seniors with more education are more at risk and lose more money than others when financial abuse occurs, perhaps due to overconfidence bias.
- Seniors described as "thrifty" lose five times as much to fraud as the average senior.
Knowing all this, what can you do?
- If something sounds too good to be true, it probably is.
- If you have an elderly loved one who may be vulnerable, you can set them up with a prepaid debit card. This will give them some measure of financial independence while allowing you to set spending limits and monitor their purchases. True Link Financial even offers a debit card that can detect and block potentially fraudulent transactions.
- Get you and your loved ones on the National Do-Not-Call-Registry and immediately hang up on telemarketers and charities that ignore the list. This is important, as the study found that a senior who receives just one telemarketing phone call per day is likely to experience three times as much financial loss as someone who receives no or only occasional telemarketing calls.
- If you hear of a loved one taking a small loss to financial abuse, take action now, as that is a sign of growing susceptibility. A senior who loses as little as $20 in a year to exploitation could be expected to lose $2,000 over the next 5 years to other types of fraud.
- Check your financial statements monthly and research any charges you don't recognize.
Education is always the first step toward combatting any problem, but then you have to take action. Continue to educate yourself, spread the world, and protect yourself and your loved ones by talking with them about the challenges, both financial and otherwise, you may face as you get older.
Dan Dzombak can be found on Twitter @DanDzombak, on his Facebook page DanDzombak, or on his blog where he writes about investing, happiness, life, and success. Dan Dzombak and The Motley Fool have no connection, financial or otherwise, to True Link Financial. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.