Social Security benefits belong to their recipients. And they should be free to use these funds however they wish. But many older consumers make poor financial decisions, either because they don't understand a particular transaction or are mislead by a financial services representative. We all know there are many bad actors only too willing to prey on seniors, and that this problem gets worse for seniors as they get older.
[See America's Best Affordable Places to Retire.]
So, the question of the day is whether there should be protective limits placed on the way Social Security benefits are used, on the accounts into which benefits are placed, or both? The question has arisen in response to a federal proposal that all Social Security benefits be provided via electronic deposit. This would totally do away with all paper checks. And while it would save the government money, and also reduce the problem of stolen Social Security checks, it raises its own set of issues.
The Center for Retirement Research (CRR) at Boston College just released a review of research on age-driven declines in financial judgment. There is no question such a decline takes place. "All told, about half of adults in their 80s suffer from either dementia or cognitive impairment without dementia," the Center said.
Researchers have looked at specific financial transactions -- handling credit-card balance transfers, home equity loans and lines of credit, auto loans, and mortgages, among others. Young consumers make mistakes because they lack experience with financial transactions; however, they compensate by having a lot of "processing" power in their brains. Middle-age consumers make the best decisions because they have both mental processing power and experience. Old consumers make the worst decisions -- their experience fails to adequately compensate for their decline in mental processing capabilities.
[See Social Security Defenders Circling the Wagons.]
Researchers looked at a range of possible policy responses to help older consumers, These included more product disclosure, testing the financial decision-making of consumers and providing some form of licensing approval for certain financial transactions, creating an advanced financial directive that anticipated cognitive decline, and regulations on financial products to evaluate and correct adverse consequences of their use by older consumers. They found there was no ideal form of protection and concluded that "even if older adults are making substantial financial mistakes, it is not clear what a well-intentioned policymaker should do."
Current Social Security rules prevent the direct garnishing of benefits. But there is a big gray area about situations in which the beneficiaries themselves have authorized financial institutions to deduct a range of account fees, loan repayments, and other charges from their Social Security deposit accounts. Restricting a person's freedom to spend their money as they wish seems unacceptable. But what should the government do when it knows that some finance companies and banks take unfair advantage of older consumers, particularly unsophisticated people for whom Social Security is often their only retirement income?
What do you think?
[See Seniors Owe Robert Butler Many Thanks.]