Dementia and Long-run Trajectories in Household Finances

Existing evidence suggests that wealth may decline before dementia onset, but the mechanisms underlying these reductions are poorly understood. Using longitudinal data from the Health and Retirement Study, we compare household finance trajectories for individuals who later develop dementia and those who do not. We find that wealth divergence between the two groups is not explained by reduced earnings, higher healthcare spending, intentional “spend-down” to qualify for Medicaid coverage, state-dependent utility, or reverse causation by which wealth declines cause dementia. Instead, our results point to impaired financial decision-making beginning about six years prior to clinically recognizable dementia.