[Special Feature: Dementia and Society] Kohei Komamura: The Impact of Cognitive Decline on Economic Activity and Countermeasures

2022/11/07

Due to advances in medical technology and other factors, life expectancy is expected to continue to extend in the future, and the "era of the 100-year life" is becoming a reality. However, the ability to enjoy a 100-year lifespan is a story for the generation born in the 21st century, a generation younger than current university students.

According to the 2017 population projections by the National Institute of Population and Social Security Research, by 2065, 40.9% of men and 66.7% of women are expected to survive to age 90 or older. For the generation currently in their 50s, the "era of the 90-year life" and a "super-longevity society" have come into view.

In the 2018 "Survey on Social Security in Old Age" by the Ministry of Health, Labour and Welfare, respondents were asked, "At what age do you consider old age to begin?" The average response was 70.8 years old. The image of the elderly in an era of longevity is changing.

(1) Cognitive Decline Associated with Aging

In a super-longevity society, it is necessary to change various social systems to accommodate healthy elderly people. On the other hand, by overemphasizing healthy elderly people, we cannot neglect the real problems that arise with aging.

No matter how young one feels, the body begins to break down in various ways. In fact, the frequency of hospital visits increases with age, as do medical costs. It is not just the body that breaks down. Neurological and brain functions—namely, cognitive functions—also decline with age. "Cognitive decline" here does not necessarily mean dementia in the narrow sense; it includes dementia, of course, as well as mild cognitive impairment and age-related cognitive decline.

The problem of cognitive decline related to Alzheimer's disease, which accounts for the majority of dementia cases, is said to be the occurrence of problems in the medial temporal lobe region related to "memory encoding, consolidation, and retrieval." Unlike cognitive decline due to diseases like Alzheimer's, age-related cognitive decline (changes due to aging within the normal range) is said to occur when the demands for "attentional stimuli" or "information processing" in the ventral striatum of the brain are high.

"Cognitive resources" that support judgment abilities, such as the decline of short-term memory and the ability to switch concentration and attention, decline with age. These age-related declines in cognitive function can happen to anyone and do not immediately have a serious impact on daily life. However, when one is fatigued, sleep-deprived, in a hurry, in an unfamiliar environment, under stress, overwhelmed with information, or worried, it leads to errors in judgment.

（2）加齢要素をくわえた二重過程理論

When cognitive function declines—that is, when "cognitive resources" become scarce—people tend to want to make easy decisions without deliberation, leading to many challenges in economic decision-making in old age. Specifically, these include: 1) becoming easily led by the other party's explanations; 2) becoming poor at understanding calculations and probabilistic phenomena (for example, judging the relative probability of an earthquake occurring within the next two years versus five years); 3) becoming poor at considering options involving risk; and 4) becoming unable to objectively evaluate one's own abilities, leading to overconfidence. These phenomena increase the risk of consumer victimization, failures in financial asset management, and falling victim to specialized fraud.

According to empirical analysis regarding age and economic behavior, the ability to act with economic rationality peaks in one's 50s and follows an "inverted U-shape" relative to age. This phenomenon can be explained by combining the dual process theory of Daniel Kahneman, who won the Nobel Prize in Economics, with changes in brain function due to age.

Dual process theory states that decision-making occurs when "Slow (System 2)," where deliberation works, controls the intentions of "Fast (System 1)," which is triggered by emotions and feelings. Humans cannot make decisions without emotions and feelings, but making decisions based solely on emotion leads to regret. The brain's foundation for emotions and feelings is the limbic system, while deliberation, which utilizes cognitive functions such as attention, concentration, memory, and planning, is based in the prefrontal cortex. The prefrontal cortex is the last to mature and the first to age. For this reason, emotional judgments tend to be dominant when young, and balanced decision-making between emotion and deliberation is possible in one's 50s after the prefrontal cortex has matured and various experiences have been gained. However, with age, the prefrontal cortex declines again, and in old age, decision-making where emotion is dominant takes place.

(3) Vulnerable Economic Subjects

In EU countries, people with anxieties or challenges regarding their judgment in economic activities are defined as "vulnerable economic subjects," and institutional reforms are being advanced to protect these people from consumer victimization and enable them to engage in economic activities with peace of mind. Not only with dementia and mild cognitive impairment, but also due to "cognitive decline from normal aging," the risk of elderly people becoming "vulnerable economic subjects" increases. In reality, companies and businesses use techniques called sales methods or "sales talk" to stimulate consumers' emotions while simultaneously reducing their deliberative functions. Malicious businesses go as far as intentionally creating such environments to lead consumers into disadvantageous transactions [on the internet, these are also called dark patterns].

In Japan, the issue of consumer vulnerability is also becoming a challenge. In the "Report of the Study Group on Consumer Contracts" (September 2021), the Consumer Affairs Agency organized consumer vulnerability into 1) "constant and categorical vulnerability based on consumer attributes" assuming the elderly, and 2) "temporary vulnerability that any consumer can fall into regardless of attributes," pointing out the need to "establish a safety net for consumers to live safely and with peace of mind through healthy transactions with businesses." Discussions regarding consumers' cognitive function and vulnerability have moved toward the latter half of 2022, with the Consumer Affairs Agency looking toward amending the Consumer Contract Act. In an aging society, economic transactions that take advantage of cognitive decline should not be permitted, and related policies must be advanced.

Of course, these problems do not only occur in daily transactions for services and goods. Similar problems occur in the management of large financial assets, and it is an issue related to the overall economic activity of the elderly.

The government is promoting the spread of the adult guardianship system and other measures to protect the assets of people with dementia. However, as mentioned above, even if serious cognitive decline to the level of dementia does not occur, problems in economic behavior due to cognitive decline associated with normal aging will arise. Furthermore, considering the possibility that many elderly people who do not realize they have mild cognitive impairment or dementia will emerge in the future, it is necessary to build a mechanism where such people can engage in economic behavior without anxiety.

(1) The Role of Research in Financial Gerontology

The Research Center for Financial Gerontology at Keio University is an organization that analyzes the impact of changes in cognitive function and physical/mental changes in the elderly on economic activities—particularly asset management and investment—and provides advice to financial institutions and the elderly, as well as policy recommendations. The center has established a joint research system involving the Graduate School of Economics, the Graduate School of Medicine, and the Graduate School of Science and Technology. The Japan Association for Financial Gerontology was also launched as an organization to collaborate with the center and share its knowledge with major domestic financial institutions. This association provides training for financial institution employees on how to interact correctly with elderly people with declining cognitive function, maintaining high ethical standards as financial professionals, and grants qualifications such as "Financial Gerontologist" to those who complete the program.

(2) The Increasingly Important Role of Local Governments

Within the context of decentralization, the division of roles between the national and local governments is also changing significantly. Basic local governments such as municipalities play an important role in the spread of the adult guardianship system and consumer protection. In the former, Adult Guardianship Support Centers, Social Welfare Councils, and Community General Support Centers play a major role on the ground, while in the latter, Consumer Affairs Centers play a major role. On the other hand, as mentioned above, there are currently no public institutions in local communities to protect the financial assets held by elderly people with declining cognitive function or to support financial asset management and investment.

Today, financial institutions with many customers experiencing cognitive decline, including dementia and mild cognitive impairment, face many challenges. For example, at bank counters, there is an increasing number of elderly customers who are confused because they can no longer understand their deposit status. In some cases, there is concern that if left as is, they may fall victim to specialized fraud or consumer victimization, making "asset care (nursing care)" necessary. Therefore, collaboration between financial institutions and welfare institutions—"finance-welfare collaboration"—is becoming important. However, under the current system, due to restrictions on personal information protection, even if a financial institution tries to collaborate with a local government or welfare institution, it cannot do so without the individual's consent unless there is an imminent danger to life or body.

In fact, systems for sharing personal information and watching over residents with challenges in the community without obtaining individual consent are available under the Consumer Safety Act (Council for Ensuring Consumer Safety in Local Communities) under the jurisdiction of the Consumer Affairs Agency, and the Social Welfare Act (Project for a Multi-layered Support System) under the jurisdiction of the Ministry of Health, Labour and Welfare. The former has the role of preventing consumer victimization, while the latter supports people with various life difficulties. Since there is much overlap in terms of establishing an inclusive society, the need for collaboration is increasing.

An excellent example of using these systems to protect the financial assets held by the elderly is the case of Usa City in Oita Prefecture. With the Adult Guardianship Support Center (directed by attorney Ryoin Momikura [2004 Faculty of Law, 2006 Law School]) as the core institution, they established a Council for Ensuring Consumer Safety in Local Communities. With seven financial institutions in the city as members, they have made it possible to share personal information of concerning customers and provide support for the financial assets of elderly people with declining cognitive function.

One might think it is fine because systems already exist, but both the Council for Ensuring Consumer Safety in Local Communities and the Project for a Multi-layered Support System are voluntary projects for local governments, and their adoption rate nationwide is not high. One reason for this seems to be that local governments do not fully understand the problems faced by financial institutions.

Currently, about 50% of the approximately 2,000 trillion yen in personal financial assets is held by those aged 65 and older, and about 30% is held by those aged 75 and older. It is estimated that 100 to 200 trillion yen of this is held by people with dementia. It will be necessary to prepare various environments so that the elderly can effectively utilize the vast financial assets they hold.

Cognitive decline is often thought of as a problem of medical care, nursing care, and welfare, but it is also a problem deeply related to the economy. I am reminded of the words of my mentor from graduate school, Professor Haruo Shimada (now Professor Emeritus), when choosing a research theme: "Komamura-kun, social problems do not occur according to academic disciplines, let alone according to administrative jurisdictions."

〈References〉

Edited by Kohei Komamura (2021) "Finance for Everyone: Financial Theory for a Good Life and a Good Society" Shinsensha

Edited by Kohei Komamura (2019) "Essential Financial Gerontology" Keio University Press