You’ve got enough financial concerns of your own. Should you be concerned about your parents’ money?
As we recently closed the sale on a new house, I discussed some of the finances with my dad. He mentioned to me that he wished he had hung onto more of his real estate investments of the past because then he’d “be a millionaire.” “Shucks,” I thought, “I was hoping you were a millionaire - you know, one of those millionaires who hides it well."
How many baby boomers really know their parents’ true financial state? If your parents take cruises several times a year, should you assume that they are really that well off? How do you know they are not just trying to keep up appearances?
There have been a number of reports lately about people learning hard lessons about the finances of their parents and grandparents. A recent feature in CNN Money reported on a woman in Tolleson, Arizona who found that her recently widowed father had racked up over $30,000 in debt in just a few short months. Having taken on the burden of handling his finances, she had to convince him to cut up his credit cards and teach him how to stay within the $40,000 a year he earned from a pension. In the AARP Bulletin, Kayt Sukel reports on a weekend visit to her grandmother where irate creditors rang the phone off the wall. “We had no idea how long my grandmother had been living with the calls or how much debt had caused them to start,” writes Sukel.
According to recent estimates, over 35 million people in North America care for an elderly parent or friend. Far from a private matter, finances are often the first thing requiring attention in these cases, whether it’s as simple as finding deals for prescription drugs or as big a headache as discharging debtload or overseeing a complex investment portfolio.
Seniors and savings – or lack thereof
According to Statistics Canada, households where the highest earner was someone 65 or older have the highest net worth of all family units in Canada. Senior income is on the rise every year, also; from 1980 to 2003, the average total income (after tax) received by senior couples increased by 18%, from $36,300 to $42,800. However, the cost of living has more than doubled in that same time period.
As a child of aging parents, do you have something to worry about? You may not know until it’s too late. According to a study by Scotiabank in 2007 of last year, “31 per cent of pre-retirees [do] not know what percentage of their pre-retirement income they [will] need post-retirement.”
In 2004, a Survey of Consumer Finances by the US Federal reserve board showed that 75% of the annual income of Americans aged 65 to 74 went toward debt payments. In two thirds of these cases, they were paying off loans and credit card debt.
Obviously it’s none of your business what financial shape your parents are in - but at some point in the future it might be.
So what can you do in the meantime, in order to avoid unwanted surprises concernign your parents' finances?
Things to think about and questions to consider
What level of financial savvy do your parents show?
- Do your parents understand important if basic financial concepts such as the dangers of cyclical debt?
- If both your parents are still alive are both of them aware of financial issues?
- Will either of them be able to take over their personal finances in the event that the other passes suddenly?
Consider your parents’ financial values.
- For example, do your parents use a credit card? Do they happen to tell you how they use it (i.e. whether or not they pay it off or carry credit month over month)? Little things they say can provide a warning sign of future problems.
- How do they deal with unexpected expenses? If you have been able to witness your parent(s) face a financial crisis large or small you may have a window into their financial values.
- Are they showy with their money and is this really in line with what you know about their financial abilities?
Consider information they volunteer.
If your mother or father confesses that they have money worries now, this can be an opportunity for you to not only step in to help but become fully informed about their financial situation. Be careful and considerate of their privacy, of course, but learn as much as you can about the big picture of their financial lives.
Are your parents receiving all the benefits to which they are entitled?
Many parents grew up in an era where self-sufficiency was a principle and they may not be receiving the benefits to which they are entitled. In other cases, they may have disabilities or be on medication for which they can receive compensation. The Canadian government provides a site called the benefits finder. (If your parents happen to be US citizens, there is a similar US-based site called Benefits Checkup.)
You can also learn a lot about pension benefits from government sites on issues like
Protect your parents against telemarketing and other scams or online phishing. As a caregiver or family member, there are a few things you can do to protect the elderly from scammers and thieves. Discuss some email scams you've avoided, how phishing works, how to deal with telemarketers etc. - especially if your parents are the "soft-hearted" type. Be sure that any caregivers hired for your parents have been police-checked.
Plan now who is going to help your parents with finances. If you have siblings, there may be an obvious choice as to who is going to help your parents’ sort out their finances but don’t assume so. It’s best to raise the subject now and deal with it at this point: who is going to step in to help mom and dad deal with finances and how are you going to deal with the discharging of debts in the case of there being debts? If there is no such person in your family, plan on bringing in help after your parents lose the ability to manage their own affairs.
Consider getting counseling now
If your mother or father has never been good at handling finances or has never had to learn, you may want to set them up with a financial counselor who can help them learn budgeting, debt management and other essentials of financial maintenance.
After any intervention, give them back as much independence as possible. Make a schedule of payments they have to make, show them what their budget looks like then check in only once in a while to make sure that they are still on the program. Trust them and that trust should be reciprocated – so they will come to you if and when they have questions.
When should you begin to think about your parents' finances? Probably the same time that you should deal with the tricky talk. We have also heard of the 40-70 rule – think seriously about or sit down and have a talk about the serious issues surrounding aging when the parent turns 70 or the child turns 40.
You and your family don’t want to end up like Kayt Sukel or others in a similar boat. If you ask yourself and your family the right questions now you will have fewer or no surprises later.
-Jim Huinink (Website Editor, ComfortLife.ca)
Sources and Resources
"What to Do When Your Parent is in Debt"
"Managing Your Folks' Money"
The Cost of living calculator |
