How Adult Children Can Help Their Parents Manage Money | American Funds

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Retirement Planning

NOVEMBER 2017

Are Your Elderly Parents Struggling to Manage Their Finances?

If so, they may need your help. These 5 strategies can help you get your parents' finances on track and protect their hard-earned money.

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: 

  • Takes more time to complete routine financial tasks.
  • Misses key details or facts in financial documents.
  • Struggles with basic math, like making change or calculating a tip.
  • Has trouble understanding financial concepts, such as interest rates or mortgages.
  • Isn't able to identify investment risks.

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:

  • Examine their tax return. This single document provides helpful insight into your parents’ assets, Hook explains, because it lists interest and dividend income generated by bank accounts, stocks, mutual funds or other types of investments.
  • Review their credit report. Look for information about debts, such as mortgages and credit card balances.
  • Study their checking account. Reviewing past transactions can give you a sense of their recurring obligations.

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:

  • Educate. Talk about the common types of financial scams and encourage your parents to be skeptical.
  • Be on the lookout for unusual behavior. A sudden strong relationship with a caregiver, for instance, could make your parent susceptible to being exploited or manipulated.
  • Keep track of their financial activity. Check credit reports to see if phony accounts have been opened in your parents’ names. You can also arrange for financial institutions to send you duplicate statements, or monitor their accounts online. “This will alert you to any unusual activity,” adds Frye.

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.

  • Saving should still be your priority. Try to maintain your current level of investing for retirement. Remember, you can’t take out loans later in life to fund your own retirement.
  • Look for ways to cover your parents’ expenses. Before tapping your own resources, consider other options. For instance, a reverse mortgage might make sense in some cases. Available to certain homeowners age 62 and above, a reverse mortgage is a loan secured by the equity in a home. Or perhaps they are in a position to downsize their living situation and benefit from the equity they’ve built in their current home.
  • Seek help from a financial professional. A financial advisor who is experienced in managing family finances can help you come up with a plan that considers the needs of each generation.

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.


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