By Amy J. Knight and Daniel C. Marson

The capacity to manage one’s own financial affairs, or financial capacity, is critical to the independent functioning of adults in our society. In the clinical setting, a person’s financial ability and independence are vulnerable to neurological, psychiatric, or medical conditions that affect cognition. Financial capacity issues frequently arise for older adults who have cognitive loss and dementia, and family members often face questions about when to intervene in managing a loved one’s household bills or bank accounts. Legally, clinical judgment about financial capacity can become the basis for determining conservatorship of a person’s estate.

Despite the importance of financial ability in everyday functioning, and the susceptibility to decline in this area with age or illness, there is a notable gap in our understanding of the neuroscience underlying financial capacity. The brain functions that mediate cognitive skills are ultimately critical to an individual’s financial capacity. While progress in neuroimaging techniques has advanced knowledge about brain functioning, there remains a need to identify more explicitly the links between changes in the brain, cognition, and financial capacity.

The neuroscience of financial capacity seeks to answer such important questions as: What are the neural and cognitive components critical to independent financial functioning in healthy adults? How do financial abilities break down in the presence of injury or disease, ultimately leading to loss of financial independence? Developing a comprehensive neuroscience of financial capacity serves to bridge the gaps in our understanding concerning the cognitive and anatomical mechanisms underlying financial abilities in daily life, and the causes of financial decline and loss of financial independence.

This article describes the emerging neuroscience of financial capacity, including its neurocognitive, neuroanatomical, and neuropathological aspects. We also highlight directions for future research and possible implications for future clinical assessment and support of older individuals with impaired financial capacity.

A Clinical Conceptual Model

Financial capacity is a complex, multidimensional construct. It includes a variety of specific abilities, ranging from basic skills such as identifying and counting coins and currency to more complex skills required for paying bills, managing a bank statement, and exercising financial judgment (Marson et al., 2000). Such abilities can vary enormously, depending upon a person’s socioeconomic status, occupational attainment, and overall financial experience (Marson, 2001).

Marson and colleagues have proposed a clinical conceptual model of financial capacity that identifies specific functional tasks and domains. The model organizes financial capacity into three increasingly complex levels of activity. The first level comprises specific tasks emphasizing understanding and pragmatic application of a skill, such as counting coins and currency. The second level aggregates tasks into domains of financial activity relevant to independent functioning, such as basic monetary skills, financial judgment, or cash transactions. The third level is the global level that integrates overall performance across tasks and domains (Griffith et al., 2003).

A Standardized Measure of Financial Functioning

Using this model, Marson and group created a standardized measure of financial abilities called the Financial Capacity Instrument, or FCI (Marson et al., 2000). The FCI has permitted advances in the understanding of financial capacity in research studies with healthy adults and in older adult patient populations.

Studies using the FCI have demonstrated emerging mild financial deficits in patients with amnestic mild cognitive impairment, or MCI (Griffith et al., 2003), emerging global deficits in patients with mild Alzheimer’s Disease, or AD (Marson et al., 2000), and advanced global impairment in patients with moderate AD (Marson et al., 2000). Patients with AD have been shown to be impaired on tasks measuring financial concepts, bank statement management, financial judgment, and bill payment, all of which represent relatively complex aspects of financial capacity. Declines in financial capacity are some of the earliest changes noted in transition to dementia (Triebel et al., 2009), with further rapid decline in financial skills over a one-year period in patients with mild AD (Martin et al., 2008).

These initial studies served to validate the FCI as a psychometric instrument for measuring functional decline in financial capacity. Insofar as cognitive decline is likely the primary cause of financial decline, these studies were also the basis for follow-up neuropsychological studies designed to identify component cognitive abilities underlying financial capacity.

Neurocognitive Models of Financial Capacity

Given the complex interplay of knowledge, judgment, and basic skills that make up financial capacity, it is not surprising that a number of cognitive abilities make distinct contributions to this capacity (Sherod et al., 2009).

As noted previously, financial capacity is particularly at risk in patients with AD. Initial studies directly assessing financial capacity in dementia have suggested the importance of working memory processes in AD (Earnst et al., 2001). Attention and executive dysfunction were also found to be associated with impaired financial skills in patients with MCI (Okonkwo et al., 2006). Executive dysfunction refers to disruption of higher brain processes in the areas of goal formation, planning, self-monitoring, response inhibition, and coordination and sequencing of complex behaviors. In particular, more procedural financial tasks—such as counting coins and currency, using a checkbook, and preparing bills—were highly related to executive measures of attention and working memory. In contrast, tasks requiring declarative knowledge, such as naming coins and currency, understanding bills, and detecting mail fraud, were generally unrelated to the working memory measures.

Math skills are integral to a range of financial tasks, including making change, calculating tips, and balancing a checkbook register. Dyscalculia (impairment in arithmetic abilities) has previously been identified as a hallmark cognitive deficit in patients with AD (Martin et al., 2003). In one study, up to 94 percent of patients suffering from mild AD were shown to have impaired calculation and number-processing skills on standardized assessment (Carlomagno et al., 1999). This study also found a relationship between calculation abilities and other executive-attentional tasks. The researchers also proposed that AD patients experience a deficit in accessing semantic representation of numbers that is unrelated to the executiveattentional component of numerical computation.

Sherod and colleagues (2009) identified written arithmetic skills as the primary predictor of overall financial abilities in a sample of healthy older adults, patients with MCI, and patients with mild AD. Specifically, a measure of written arithmetic skills (WRAT-3 Arithmetic) believed to tap conceptual knowledge of numbers, arithmetic operations, and calculation abilities was strongly associated with overall financial capacity on the FCI across all three groups.

Other cognitive functions found to mediate global financial capacity were executive function (visual attention, scanning, and sequencing), and auditory verbal recall. Aspects of diminished financial performance may thus be related not only to failing math skills, but also to declining executive function and mental flexibility, particularly for tasks with greater requirements for manipulation of numerical information. An example of such a task might be reviewing a monthly bank statement for detailed financial information related to bank account activity, or executing a pragmatic task such as making a payment by check and recording the transaction in a checkbook register.

The Sherod study referenced above demonstrated that initial erosion of financial skills begins in patients with amnestic MCI. A followup study with MCI participants suggested that decline on a pragmatic task of using a checkbook register may predict conversion to dementia within a year’s time (Triebel et al., 2009).

Exploring the relationship between cognitive changes and performance on financial tasks helps clarify the extent to which specific cognitive impairments challenge financial capacity and thereby independent living. In addition, one can look to the underlying brain regions associated with cognitive specialization to better understand a neuroanatomical model of financial capacity.

Neuroanatomical Models of Financial Capacity

The prominence of math skills in everyday financial activity points to the importance of various brain regions thought to be involved in numerical processing and mathematical calculation.

Neuroimaging techniques such as positron emission tomography (PET) and functional magnetic resonance imaging (fMRI) have been used to measure functional activity in brain regions associated with a variety of math tasks. A PET scan detects a trace amount of radioactive material that is injected or inhaled so as to measure aspects of brain functioning, such as blood flow, oxygen use, and sugar (glucose) metabolism. Functional MRI is a non-invasive procedure that measures changes in blood flow that accompanies neural activity in the brain. Color changes on these types of functional scans show researchers which part of the brain is active when a subject performs a mental task, thereby inferring areas of specialization in cortical tissue.

Brain Regions and Their Relationship to Financial Capacity

The brain regions involved in mathematical calculation depend upon the complexity of the task, and the type of problem. Mathematical manipulation of numbers has been shown to activate a number of brain regions to engage a semantic system of numeracy as well as verbal or visual working memory during mental arithmetic (Cowell et al., 2000). Operations of simple arithmetic involving addition, subtraction, and multiplication can be memorized and “math facts” retrieved from long-term memory. More complex calculations involve a broader network of brain activation required for the procedural execution of arithmetic operations in sequence according to the syntax of the problem (Delazer et al., 2003).

Simple number repetition, in the absence of any math requirements, has been shown to activate the middle portion of the frontal lobe. Cowell and colleagues (2000) also found frontal activation in the medial frontal cingulate cortex during a calculation task that involved holding an arithmetic problem in working memory while accessing a memorized math table or using an arithmetic rule. Activity in the area of the cingulate is thought to reflect general cognitive requirements such as selective attention, working memory, decision making, response selection, and monitoring. These elements of cognition can be found in the performance of effortful tasks, but they are not unique to mental arithmetic, as many studies show cingulate activation over a range of tasks.

The posterior parietal brain area has been identified as a key region associated with numeracy and mathematics in general. In contrast to simple number repetition, mental calculations also showed significant activation in the left lateral parietal region involving the super marginal and angular gyrus. Other studies have shown that the extent of activation in the parietal lobe predicts individual difference in mathematical abilities (Grabner et al., 2007). The superior parietal lobe is more related to number comparison and estimation, while the inferior parietal lobe supports verbal retrieval of exact calculations (Delazer et al., 2003).

Multiple studies have demonstrated a specific role for the left angular gyrus in calculation abilities. In exact calculations (versus estimation), because of verbal arithmetic fact retrieval, areas of brain activation were shown in the left angular gyrus of the inferior parietal lobe and the left inferior gyrus of the frontal lobe (Dehaene et al., 1999). In a direct study of mental arithmetic using a fact retrieval strategy, Grabner and colleagues (2009) demonstrated a stronger association with left angular gyrus activation in comparison to a procedural problem-solving strategy. These studies build support for the notion that left angular gyrus mediates the retrieval of verbally stored math facts, such as a memorized multiplication table, from long-term memory. Training effects have also been demonstrated in complex calculation problems where learning-specific problems produced changes in cerebral-activation patterns, notably in the left angular gyrus (Delazer et al., 2003).

Solving more complex arithmetic problems with procedural strategies has been shown to activate a more extensive network of brain areas. Effortful problem-solving is associated with widespread fronto-parietal activation, including the basal ganglia (Grabner et al., 2009). Delazer and colleagues (2003) presented subjects with complex arithmetic problems. Some subjects received prior training; some did not. Contrasts between trained and untrained problem-solvers showed more extensive fMRI activations in multiple frontal brain regions, including bilateral inferior frontal, left superior frontal, and right medial frontal areas. These areas are not specific to calculations and are known to impact tasks involving working memory and executive functioning in general. The researchers also found more extensive activation in the bilateral intra-parietal sulcus, with its role in quantitybased manipulation of numbers, such as approximation, estimation, or number comparison.

Additional involvement of the temporal lobe has been suggested in mediating aspects of simple calculations. Zago and colleagues (2001) proposed that mental imagery is integral to solving math problems and involves brain regions in the temporal lobe. The left inferior temporal gyrus was also shown to be more active in trained versus untrained subjects in the recall of complex arithmetic problems (Delazer et al., 2003). The association of this region of the temporal lobe in other tasks of visual imagery supports the use of visual strategy in math fact recall.

Functional imaging studies have shown that distinct brain regions support arithmetical processing. While the inferior parietal lobes play a crucial role in the representation and processing of numerical magnitude and mental arithmetic, the frontal cortex is also involved, depending on task demands and complexity.

Neuropathological Models of Financial Capacity

Several forms of neuropathology may disrupt cognitive abilities critical to financial capacity. Studies of patients with brain injury or disease have shown that disruption to arithmetic concepts and operations can occur via different lesion sites or be influenced more broadly by degenerative deterioration.

Knowledge of number concepts and mathematical symbols can be disrupted with verbal deficits associated with left hemisphere damage. The ability to organize and manipulate numbers spatially, such as in long division, can be disrupted with spatial deficits associated with right hemisphere damage. An inability to perform arithmetic operations in either verbal or spatial modalities may reflect deficits in attentional or working memory systems associated with the frontal lobe.

As discussed, the neuroimaging literature supports the hypothesis that damage or degeneration of specific regions within the parietal cortex impacts the ability to carry out mathematical functions. A prominent region of disruption for acquired dyscalculia has been demonstrated in the left parietal cortex. As noted previously, this area is thought to contribute to knowledge of arithmetic operations. In particular, damage to the left angular gyrus of the inferior parietal lobe may cause deficits in mental calculation, including simple operations such as counting or ordering numbers. Furthermore, the connectivity of the parietal cortex to other brain regions in the frontal lobe and temporal lobe may be associated with changes in specific skills, such as procedural recall and complex numerical manipulation.

Understanding the pathology in AD may help to identify neural and neuroanatomical changes that disrupt financial capacity as the disease progresses. Pathology in posterior parietal brain regions and midline frontal cortex has been shown in studies of amyloid deposition, hypometabolism, and structural atrophy in patients with AD (Buckner et al., 2005). Attention and executive function as predictors of financial abilities could also implicate pathology within the midline cortical regions such as the posterior cingulate and medial superior frontal lobes. Posterior cortical regions implicated in the early neuropathology of AD also have been shown to be related to calculation ability. Regional metabolic abnormalities of the angular gyri and inferior temporal lobe also have been associated with dyscalculia in AD (Hirono et al., 1998). Some studies have suggested that functional recruitment of frontal regions occurs in concert with a decline in connectivity of posterior brain regions in AD (Wang et al., 2007).

A recent neuroimaging study was the first to establish a clear empirical link between angular gyrus and psychometrically measured financial capacity. Griffith and colleagues (2010) investigated the relationship of brain atrophy and associated cognitive changes to declining financial abilities in patients with MCI and
older adult controls. 

They found that patients with MCI performed significantly below controls on overall financial abilities and had significantly smaller hippocampi. Among MCI patients, financial performance was moderately correlated with angular gyri and precunei volumes. Angular gyri volume was also shown to be a unique predictor of financial abilities after accounting for overall mental status and demographic variables. The relationship of angular gyri volume with financial abilities was shown to be primarily mediated by arithmetic ability, with attention as a possible secondary mediator.

The findings suggest that early neuropathology within the lateral parietal region in MCI leads to a breakdown of cognitive abilities that impact everyday financial skills (Griffith et al., 2010). Such neuroimaging studies in AD provide guidance on how critical cognitive abilities break down to interfere with a person’s capacity to carry out financial tasks as measured psychometrically with instruments like the FCI.

Future Directions

Human knowledge and understanding of financial constructs and execution of mathematical operations involve a number of cortical regions and brain networks. Continued research with neuropsychological measurements and neuroimaging techniques is needed to illuminate how our brains allow us to conduct specific financial tasks, and how compromised brain function leads to impairment and loss of such abilities. 

Future neuropsychological studies might focus on specific financial functional domains and tasks, such as checkbook management, bill payment, or simple investment decision-making, in order to better understand the cognitive mechanisms of impairment and loss of these discrete financial skills.

Neuroimaging of brain structures (volumetric MRI) and neural networks (e.g., resting state fMRI) may better explain how and why specific financial abilities break down with disease or injury to distinct brain regions. Neural networks support the multiple cognitive abilities needed to successfully execute complex daily financial activities.

Longitudinal studies are needed to identify how financial capacity can change over time and to possibly identify people at risk for decline in their financial skills. Such knowledge can lead to earlier identification of financial capacity impairments in patients, provide guidance to clinicians and families, and support interventions to reduce risks of exploitation and financial mismanagement. The possibility of early identification of older individuals at risk for impaired financial capacity, using conjoined neurocognitive and neuroimaging modalities, has important clinical implications. Recommendations for financial monitoring and actual protections may be instituted before financial difficulties deplete assets or lead to exploitation.

Summary

In conclusion, the emerging neuroscience of financial capacity is becoming increasingly relevant with respect to disorders of aging, such as mild cognitive impairment and Alzheimer’s Disease. Through such neuroscientific investigations, we will better understand the interface between underlying neuronal damage, network disruption, brain volume loss, cognitive deficits, downstream impairment in older adults, and how it affects important functional abilities such as financial capacity.

Amy J. Knight, Ph.D., is a postdoctoral fellow in neuropsychology in the Department of Neurology at the University of Alabama at Birmingham, Birmingham, Alabama. Daniel C. Marson, J.D., Ph.D., is a professor of neurology and director of the Alzheimer’s Disease Center in the Department of Neurology at the University of Alabama.

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Editor’s Note: This article is taken from the Summer 2012 issue of ASA’s quarterly journal, Generations, an issue devoted to the topic “Financial Capacity and Competency in an Aging America.” ASA members receive Generations as a membership benefit; non-members may purchase subscriptions or single copies of issues at our online store. Full digital access to current and back issues of Generations is also available to ASA members and Generations subscribers at MetaPress.