As we grow older more and more of us will suffer from dementia. A new research study by David Laibson, a Harvard professor (and colleagues at NYU, the Federal Reserve Bank of Chicago and Federal Reserve Board in Washington), reports dementia doubles every 5 years after age 60 until by age 85 some 30 percent of the population is dotty. And even old people without dementia have “substantial cognitive impairment.” All told, nearly half the population between 80-89 is either demented or has cognitive impairment, according to the report.
The researchers are worried about all of this because people suffering from these maladies just aren’t up to handling their finances. Even taking into account the 401K crash, there’s a lot of money among the elderly, and if some old screwball starts fooling around, it could all go down the drain. Think about it: Geezers could wreck the Wall Street rally.
So what these professors and economists propose in their paper, entitled “The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation,” is a series of options. As reported in Pensions & Investments, an online service that follows the ups and downs of pensions, these include:
….Improved disclosure is less paternalistic, although the authors doubt such actions will effectively improve financial choices. “Even for cognitively healthy populations, there is scant evidence that increases in disclosure improve decision making,” the paper said…
A more paternalistic option, the report said, is “gentle nudges” from plan executives to steer older participants into the proper investments. But while the authors said they weren’t opposed to the nudges, they said older adults with “significant cognitive impairment may be no match for highly incentivized parties with malevolent interests and ample opportunities to nudge in the wrong direction.”
Other policy options in the paper: laissez faire; requiring participants to pass a “licensing” test if they want to opt out of a safe harbor investment or make other significant investment decisions; requiring older adults to develop a financial “advanced directive,” such as appointing a standard fiduciary, before reaching age 70; regulating financial products like “dietary supplements,” with safety and quality standards; and requiring “explicit regulatory approval” of financial products.
Bottom line: Tons more business for the mutual fund industry, which already provides investment advice—much of it bad– to 401Ks, but now can argue that it needs to protect the nation’s wealth by becoming fiduciaries for old zombies. And who’s going to make that happen? The Congress,which will enact regulations that allow private companies with their superior knowledge to handle the money.
Now to be fair about all this, rip off is not what Laibson has in mind. But given the existing political climate, with a Congress and a series of administrations that came to the verge of turning all or part of the Social Security system over to Wall Street, that’s what is more than likely to happen.
Big Meaning: Here’s how, in the name of the nation’s public financial health, a new sort of “rationing’’ can lead to the greatest robbery of the elderly in the nation’s history. First Wall Street tells us to take charge of our own investments and get big brother off our back. Now, with dementia as its guide, Wall Street can opt for a solution some might label “socialism”–if only private industries weren’t making so much money off of it.