Are unpaid bills piling up on your parents’ kitchen table? Perhaps your elderly mother is having trouble making change at the supermarket. It’s the sad truth that the ability to manage money tends to decline with age, as memory and problem-solving skills falter. It may be time for you to step in and offer to help.
According to a recent poll of baby boomers commissioned by Holiday Retirement, an operator of senior living communities across the United States, over 40% of those surveyed reported that they are managing or helping to manage finances for a parent or aging relative.
Talking to elderly parents about money can be a touchy subject. It’s important to be respectful and make it clear that you have their best interests at heart. Assure your loved ones that they are still in control of their finances.
“Stress that you want them to maintain their independence,” says Austin Frye, a financial advisor and the president of Frye Financial Center. “Your role is to monitor and make sure they are protected."
Here are five steps to help you get started:
1. Be Aware of Changes in Behavior
A study conducted by the Department of Neurology at the University of Alabama’s School of Medicine sought to identify early indications of financial decline in older adults. Included among the study’s findings was a checklist of early warning signs. There could be cause for concern if your parent:
2. Learn About Their Financial Lives
“You need to take inventory of your parents’ assets and liabilities,” says Howard Hook, a CPA and a certified financial planner with EKS Associates. Understand their current situation.
Help them gather and organize important documents, such as bank, brokerage and credit card statements, mortgage agreements, insurance policies, pension and retirement benefit summaries, and their Social Security payment information. In addition, if your parents don’t already have one, compile a list of any financial advisors, accountants, bank personnel and lawyers who work with them.
If they have lost track, you may have to do some detective work:
3. Prepare a Durable Financial Power of Attorney
Your parents can give you the legal authority to perform day-to-day financial tasks for them — such as paying bills or making investment decisions. A durable power of attorney document remains in effect even if they become incapacited, but they can change or cancel it while they are still able to make decisions.
If you haven’t been given power of attorney by your parents and they become unable to make decisions, a court will have to grant you conservatorship to take control of their finances.
4. Protect Your Parents From Financial Scams
One in 20 older adults report some form of financial mistreatment, according to the National Adult Protective Services Association. What’s more, elder abuse is greatly under-reported, with only one in 44 cases of financial abuse actually documented.
Some are victims of outright fraud, while others may simply be unable to recognize bad advice.
Frye knew something was wrong when his 92-year-old father told him he had invested in a Certificate of Deposit with an unusually high interest rate of 5%. After doing some digging, he learned that his father had gone to a bank seeking a CD. A "nice young man" sold him a restrictive insurance product with high fees, which did not fit his father’s financial needs.
“It was a completely inappropriate product,” Frye relates. “My dad would not have been misled like that 15 years ago.”
Communication and vigilance are imperative:
5. Balance Financial Priorities
You may find that your parents need more than just financial guidance. They may not have enough money to pay their bills and may lean on you to help fill the gaps. This could severely strain your budget, especially if you’re raising children of your own. While you understandably want to help your parents, it’s important to balance their financial needs with your family’s financial goals.
It's difficult to see your parents decline, but "you can't wish these things away," Hook sympathizes. "You have to be aware." The emotional and financial stress can be overwhelming, particularly if you’re juggling other family responsibilities. But there are steps you can take to make the situation manageable.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.