A Person-Centered Approach to Financial Capacity Assessment: Preliminary Development of a New Rating Scale

Authors:  Peter Lichtenberg, Wayne State University; Jonathan Stoltman, Wayne State University; Lisa Flicker, Wayne State University; Madelyn Iris, CJE SeniorLife; Benjamin Mast, University of Louisville, Kentucky

Publication: Clinical Gerontologist

Year: 2015

Focus Area: 2000 to present, Aging, Decision Making; Financial Literacy

Relevance: Impairment in financial decision making is associated with increased susceptibility to financial exploitation in older adults, yet existing assessment instruments use neutral or hypothetical stimuli (e.g., “How could you be sure the price of a car is fair?”) rather than stimuli that examine the specific individual’s actual situation and financial judgment or transaction. The Lichtenberg Financial Decision Rating Scale (LFDRS) uses a person-centered method to identify functioning and risk in five domains: financial situational awareness, psychological vulnerability, sentinel financial decision/transaction, financial exploitation, and undue influence.

Summary: The LFDRS was developed through Concept Mapping methods and input from experts fields related to financial capacity, elder abuse, and aging. Reliability of the instrument was was tested by videotaping its administration with five older adults. Five experts watched the interviews and independently rated the integrity of a participant’s financial decisional abilities as fully capable, marginally capable, or not capable. The final scale consists of 61 multiple-choice questions that were asked of
all participants. Application of this scale can improve gerontologists’ ability to assess financial capacity and vulnerability to financial exploitation.

Author Abstract: Financial exploitation and financial capacity issues often overlap when a gerontologist assesses whether an older adult’s financial decision is an autonomous, capable choice. Our goal is to describe a new conceptual model for assessing financial decisions using principles of person-centered approaches and to introduce a new instrument, the Lichtenberg Financial Decision Rating Scale (LFDRS). We created a conceptual model, convened meetings of experts from various disciplines to critique the model and provide input on content and structure, and selected final items. We then videotaped administration of the LFDRS to five older adults and had 10 experts provide independent ratings. The LFDRS demonstrated good to excellent interrater agreement. The LFDRS is a new tool that allows gerontologists to systematically gather information about a specific financial decision and the decisional abilities in question.

Link to the full article.

Importance of Numeracy as a Risk Factor for Elder Financial Exploitation in a Community Sample

Authors: Stacey Wood, Department of Psychology at Scripps College; Pi-Ju Liu, Department of Psychology at University of SanFrancisco, California; Yaniv Hanoch, School of Psychology at University of Plymouth; Sara Estevez-Cores, Department of Psychology at Scripps College

Publication: Journals of Gerontology: Psychological Science

Year: 2015

Focus Area: 2000 to present, Aging, Decision Making, Financial Literacy

Relevance: Numeracy is the capacity to understand and manipulate basic mathematical concepts. Older adults tend to be less numerate than younger adults and therefore may be at higher risk for poor decision making and financial exploitation.

Summary: In the current study, the authors interviewed a sample of older adults ages 60+ to identify risk factors for financial exploitation. They included executive functioning, general cognitive functioning, and numeracy. It was hypothesized that lower scores on all of the cognitive measures will be a critical risk factor for higher scores on the fraud susceptibility measure, particularly lower numeracy.

  • A total of 201 community-dwelling adults aged 60 and older were recruited to participate.
  • Less numerate participants reported risk of experiencing financial exploitation significantly more frequently.
  • Numeracy remained a significant predictor in the presence of other risk factors, including dependency, physical and mental health, as well as overall cognition.

Author Abstract: Objectives: To examine the role of numeracy, or comfort with numbers, as a potential risk factor for financial elder exploitation in a community sample. Method: Individually administered surveys were given to 201 independent, community-dwelling adults aged 60 and older. Risk for financial elder exploitation was assessed using the Older Adult Financial Exploitation Measure (OAFEM). Other variables of interest included numeracy, executive functioning, and other risk factors identified from the literature. Assessments were completed individually at the Wood Lab at Scripps College in Claremont, CA and neighboring community centers. Results: After controlling for other variables, including education, lower numeracy was related to higher scores on the OAFEM consistent with higher risk for financial exploitation. Self-reported physical and mental health, male gender, and younger age were also related to increased risk. Conclusions: Results indicated that numeracy is a significant risk factor for elder financial exploitation after controlling for other commonly reported variables. These findings are consistent with the broader literature relating numeracy to wealth and debt levels and extend them to the area of elder financial exploitation.

Read the full article here.

Deception: From Ancient Empires to Internet Dating

Authors: Brooke Harrington, Ed., & Guido Möllering (Max Planck Institute), Paul Thompson & Hany Farid (Dartmouth College), Jeffrey T. Hancock (Cornell University), Tom Lutz (University of California, Riverside), Maureen O’Sullivan (University of San Francisco), Carl T. Bergstrom (University of Washington), Gary Urton, Frederick Schauer & Richard Zeckhauser (Harvard University), Mark G. Frank (State University of New York),  Gary Alan Fine (Northwestern University), Ford Rowan (George Washington University), William Glenney IV (Naval Operations’ Strategic Studies Group), & Kenneth Fields (Stanford University)

Publication: Stanford University Press
Year: 2009
Focus Area: Deception

Relevance: By synthesizing the fragmented world of deception research across the humanities and sciences, this text serves as a “status report on deception” (p. 2).

Summary: The interwoven contributions to this work are organized around four themes of deception:

  1. defining & detecting deception
  2. technology & deception
  3. the relationship between deception & trust
  4. social institutions through which deception is perpetrated & regulated

Each theme is addressed from three or four different perspectives, all of which account for and refer to the other works.  This creates a cohesive and broad view of the state of deception research, while allowing for the varying definitions, foci, and opinions within the field.  Of particular relevance to financial fraud are the sections on:

  • cognitive hacking (Paul Thompson, Dartmouth College)
  • digital deception (Jeffrey T. Hancock, Cornell University)
  • digital doctoring (Hany Farid, Dartmouth College)
  • method acting in daily life (Tom Lutz, University of California, Riverside)
  • fraud in financial markets (Brooke Harrington, Max Planck Institute)
  • why most people are poor lie detectors (Maureen O’Sullivan, University of San Francisco)

Opening Paragraph: Deception and especially lying are typically ascribed to human beings and often distinguished from other forms of conveying incorrect or misleading information by intentionality.  If a person is merely ignorant of the truth, then telling something other than the truth would not usually be considered lying, except that pretending to know the truth is itself a kind of deception.  (Different ideas about intentionality are presented elsewhere in this volume, along with proposals to distinguish lying from deception.) –excerpted from Foreword by Murray Gell-Mann, Santa Fe Institute (Nobel Prize in physics, 1969)

Full Article: Hard copy text only


Investor Fraud Study: Final Report

Authors: The Consumer Fraud Research Group, for NASD Investor Education Foundation

Year: 2006

Focus Area: Persuasion, Profile

Relevance: Successfully preventing fraud depends on both understanding the techniques of fraudsters and identifying who is vulnerable to which types of fraud.

Summary: This study examines the characteristics of different types of victims and fraudsters’ tactics by  reviewing transcripts of fraud pitches and conducting interviews and phone surveys of lottery and investment fraud victims (165) and non-victims (150).

Fraud tactics:

  • source credibility (claiming to be from a legitimate business),
  • phantom fixation (tantalizing with wealth and riches), and
  • social consensus (claiming others are already investing successfully), along with many other methods from fear to friendship, tailored to any given audience.

Victim profiles:

  • Investment fraud victims were more often married men with higher educations and incomes, and with greater financial literacy than non-victims.
  • Lottery fraud victims were more often widowed women over 75, living alone and with strong religious feeling.  They were also more likely to feel that they “have not gotten what they deserve out of life” and “should live for the moment.”
  • Both investment and lottery victims were more likely to have experienced more difficulties and negative life events, relied on their own judgment rather than a professional’s opinion, were more open to sales pitches, and demonstrated “low persuasion literacy.”

Author Abstract: A multifaceted inquiry of consumer fraud analyzed undercover tapes of fraud pitches and surveyed victims and non-victims to determine how they differ. Tape analysis revealed con criminals customize their pitch to match the psychological profile of the victim and use a complex combination of influence tactics within each pitch to persuade. Investment fraud victims demonstrated a better understanding of basic financial literacy than non-victims. Both investment and lottery victims were more likely to have experienced a negative life event unrelated to their fraud experience. Both victim types were more likely to listen to sales pitches from unknown sales persons. Investment and lottery fraud victims both dramatically under-report fraud. It is recommended that 1) Financial literacy and fraud prevention efforts be broadened to incorporate greater emphasis on spotting and resisting con criminals’ persuasive tactics; 2) Encourage more reporting of illegal activity to law enforcement and 3) Conduct more research to develop a vulnerability index and test the effects of persuasion education as a deterrent to fraud.

Full Article