Managing Your Parent's Finances
There may come a time when you may want to – or have to - start managing your parent's finances. This can be a tough conversation to have because loss of control over finances can be a delicate topic – one that can be distressing for an elderly person. Still, it’s important to talk about it before the need actually arises. That way you’ll have everything in place to take over should the need arise.
Did you know that sound financial decision-making peaks around 53? After that, it gradually declines – even in healthy seniors, according to Fidelity Investments. According to the investment firm’s research:
“While only nine percent of older adults (aged 50-80) surveyed felt they'd ever lose the ability to manage their day-to-day finances, 60 percent admit having witnessed it happen to a friend or family member—and 40 percent actually helped manage their own parents' finances.”
So, chances are, managing your parent's finances is something you’ll have to do someday.
When a Parent Needs Help
Not only is aging is a factor, but conditions such as dementia and Alzheimer’s can play a role in the inability to manage finances. And because people may deny they need help, even when they do, it’s good to know the signs to look out for. Here are five “early warning signs” of financial decline in older adults:
It takes your aging loved one longer to complete everyday financial tasks, such as bill-paying or balancing a checkbook.
- Your elderly parent pays less visual attention to key details/facts in financial documents and has trouble identifying things like bank transactions in a statement.
- He or she shows a decline in everyday arithmetic skills related to finances. For instance, having trouble figuring out a deductible or making change.
- There is a decline in ability to understand financial concepts, such as gaps in check sequence, or interest rates.
- He or she has difficulty identifying risks in an investment opportunity.
When these signs appear, it doesn’t necessarily mean it’s time to step in and take over, but it does indicate a decline, and a higher risk that they will fall victim to elderly financial abuse. At that point, it’s good to already be aware of what needs to be done in a worst-case scenario. That’s why it’s important to address potential issues before “the tipping point,” says Suzanne Schmitt, vice president of Family Engagement, Fidelity Investments.
"The possibility of losing financial independence is something for which we all need to plan,” she said in a press release. “By engaging in conversations now and having a strong support system in place, families can help loved ones gracefully transition into that next phase of their lives."
What You'll Need to Do
There are several areas that adult children will need to be familiar with so that a financial transition is as stress-free as possible. Be sure to work with your parents to create a “financial map” you can follow. First, make sure basic legal documents are taken care of, such as a will and an inventory of assets. Put everything in a file so you can easily find it when necessary. Other documents you should have include insurance policies, medical directives, and signed power of attorneys for financial and health matters. Find out if your parents have a personal banker and/or financial advisor, and keep their names and contact information in the file.
You may want to help your elderly loved ones pay their bills as a first step. Try to automate transactions by setting up direct deposits and payments for housing, utility, phone, and other expenses. Even if your parent isn’t ready to turn over the reins, sitting with them while they do these tasks will help familiarize you with your parent’s accounts. According to Fidelity, 50% of adult children have little or no knowledge about their parents’ day-to-day spending on basics, such as mortgage and utility bills.
Of course, as difficult as it is, part of the discussion should be about final arrangements. Death is an inevitable part of life. By planning ahead, your elderly loved one prevents the additional stress to the family of searching for necessary documents while mourning the loss of a loved one.
Beyond the Family
According to researchers, when cognitive impairment starts to affect financial capacity, many families turn to their physicians, but many physicians aren’t trained to have the conversations. The researchers suggest that when doctors are able to have such discussions, they can limit hardships and help patients enact effective financial protections. The role of physician in such cases could include:
- Educating older adult patients and families about the need for advance financial planning;
- Recognizing signs of possible impaired financial capacity
- Assessing financial impairments in cognitively impaired adults
- Recommending interventions to help patients maintain financial independence;
- Knowing when and to whom to make medical and legal referrals.
Often, researchers said, reports to the physician from the patient or their family may be the first indication of financial impairment, and can be a sign that further cognitive testing is required. So it’s important for families and patients to communicate to the doctor any physical or mental declines they may observe.
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