Financial Capacity

Importance of Financial Capacity

Impairment and loss of FC has important psychological, economic, and legal consequences for patients and family members. Similar to driving and mobility, the power to control one's finances is a fundamental aspect of individual autonomy in our society. Loss of financial control may result in psychological consequences such as increased feelings of dependency and depression. Declines in FC are also associated with immediate and long-term economic consequences. Failure to pay bills or difficulty in handling basic financial tasks may result in disconnection of services, property repossession, poor credit ratings, and even homelessness. Impaired financial judgment may also result in loss of assets intended for long-term care or inclusion in a will or trust. From a legal perspective, diminished FC is associated with increased risk of financial exploitation in the form of consumer fraud [Page 314]and other scams, as well as greater susceptibility to undue influence by family members and third parties. As noted above, some situations of financial incapacity may reach the courts and result in loss of decisional autonomy and the appointment of a conservator (or guardian) by the court to protect the person and his or her estate.

Conceptual Model of Financial Capacity

Early conceptual formulations of FC were anemic and limited to unelaborated descriptions such as “money management skills” or “financial management skills.” In actual fact, FC is a complex, multidimensional construct representing a broad range of conceptual, pragmatic, and judgmental skills. This multidimensionality is reflected in the concept of limited financial competency recognized across state legal jurisdictions, where an individual may still be competent to perform some financial activities (e.g., handle basic cash transactions, write small checks) but no longer others (e.g., make investment decisions or asset transfers). In addition to multidimensionality, a conceptual model of FC should incorporate the dual performance and self-interest perspectives discussed above. For example, persons with schizophrenia may have adequate financial performance skills but lack FC because they consistently make poor judgments about how to spend their government entitlement monies.

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