Older Family Members and Finances

by Lucy Schrader

I expect to help our kids learn about money and finances.  I know we need to guide them, but not make all of their decisions.  We need to set up situations for them to succeed to become independent.  Yet when it comes to my parents, I hold some different beliefs—they are grown adults; they should take care of their own finances; who am I to tell them how to live and spend their money?  Yet with changes in aging, I may need to shift my thinking. There are more and more elderly adults who are not able to take care of their finances anymore or who need extra help.

So how can a person assist when parents or relatives need more help with their finances? This process takes time and for many families, this is not an easy thing to talk about.  Finances often have many emotions attached, including fear and anger.  And when someone loses control over financial decisions, they often loose independence (in where they live, how they live and what they can do or buy).

As you start discussions, be sure to:

·         Acknowledge feelings

·         Find a low-stress time to talk

·         Find natural times to talk about the issues or to ask questions (for example, use a news feature or an article to start the conversation)

·         Be aware of possible reactions (from relief to anger) from everyone involved, including yourself

·         Respect the person

Having financial conversations can be very hard to do.  Let the person know you want to help them in the way she wants to be helped and that you have her best interest at heart.  You might ask some questions, to encourage the person to put her wishes together and to have a place for all of these items (safe deposit box, fire-water proof file box, etc) so that if you need them in a medical emergency, then you can get to them. 

 

These questions (from Caring.com) can be useful as you help your relative plan for the future.  The person many not want to give you answers to all of these for privacy or other reasons.  Again, you can share the information and continue the conversation another time.

1.      Do they have a durable power of attorney?

The durable power of attorney (DPOA) is considered one of the most important personal legal documents for any older adult to have. Along with a healthcare proxy, it will give whomever your parent designates—whether it be you, one of your siblings, or someone else –the power to make financial and legal decisions (or, in the case of a healthcare proxy, to make medical decisions) if your parent is incapacitated. Without a durable power of attorney in place, you'll have to go to court to get appointed as your parent's guardian.

2.      Where do they keep their financial records?

3.      What are their monthly expenses?

4.      How can I pay their bills if necessary?

5.      Do they have any kind of medical insurance?

6.      What's their income and where does it come from?

7.      Have your parents done any estate planning?

8.      If they can no longer live on their own, what can they afford in terms of housing?

9.      What financial planning have they done?

10.  Do they have an advance health directive?

Helping someone with finances may not be an all or nothing approach. If you feel the person does need help, when at all possible, choose the least intrusive financial tool to keep your relative as financially independent as possible (Helping Older Family Members Make Financial Decisions guide).  For example, maybe your mother gets behind in paying her utility bills, so you set up automatic bill payments for her. She can, however, still manage some cash for grocery shopping, so you set up a system for her to get a cash amount every week to give her some independence.

Also in the guide Helping Older Family Members Make Financial Decisions, the authors look at different tools based on if the relative is or is not able to make financial decisions. (Please note, the following explanations are very brief.  You will need to seek legal and professional help in setting up several of these options.)

 

When the relative can make sound financial decisions, these tools can help:

·         Automatic bill payments

·         Joint bank accounts

·         Power of attorney
The person designates someone to make financial and legal decisions for him when he is not able (when he is incapacitated).

·         Living trusts

A trust is a three-party arrangement, where assets are transferred from one person (the grantor) to another (the trustee).  The trustee holds and manages these assets for the benefit of a third person (the beneficiary).

 

When your relative can’t make sound financial decisions, these strategies can help:

·         Representative payee

If a person cannot manage his checks from Social Security, veteran’s pension, railroad retirement or public benefit programs, a representative payee can be appointed.  Checks are written to the payee on behalf of the beneficiary.  The representative payee cannot get access to the person’s savings accounts or other assets.

 

·         Conservatorship (or guardianship of the estate or guardianship of the property)

Only a court can create a conservatorship.  A person asks the court for the right to manage another person’s financial affairs after that person cannot do so (and if a durable power of attorney or a living trust is not in operation).

 

Families should be aware of their motives for seeking a conservatorship (or any of these tools)—do they have inheritance concerns or concerns about protecting an older person’s money for his or her own needs and wants.  Also, are there differences in values?  Sometimes the older person spends money on different wants and needs, but he is not endangering himself.

 

On an emotional level, none of these may be easy to do.  Role reversals, change of care and change of life habits can be difficult to come to terms with. Be aware of your family member’s and your reactions and reasons and reassess the situation regularly. The goal is to help the person stay as financially independent as possible.

 

References and Resources

5 Most Important Financial Questions to Ask Your Parent. Retrieved May 9, 2013 http://www.caring.com/checklists/financial-questions-for-parents

10 Things You Should Know About Your Parents' Finances. Retrieved May 9, 2013 http://www.caring.com/checklists/elderly-parents-finances

Parker, K. & Patter, E. (2013.) The Sandwich Generation: Rising financial burdens for middle-aged Americans. Pew Research Center. http://www.pewsocialtrends.org/2013/01/30/the-sandwich-generation/#overview

Schmall, V., Nay, T., & Bowman, S. (2005.) Helping older family members handle finances. Oregon State University. Retrieved May 9, 2013 http://extension.oregonstate.edu/catalog/pdf/pnw/pnw344.pdf

 

 

Lucy Schrader
HES Associate State Specialist and
Building Strong Families Program Coordinator
University of Missouri Extension
162 Stanley Hall
Columbia, MO  65211
573-882-4071 or SchraderL@missouri.edu

http://extension.missouri.edu/bsf

 

Strong Families for Strong Communities

 

 

Top Ten Financial Tips for a New College Grad

            Often we are asked to work with a promising undergraduate on a project allowing them to receive Honors credit for a course they take in our department.  A common course where this occurs is our Introductory Personal and Family Finance course. Ms. Paige Wheeler wrote her paper on the ten most important financial tips for a new college graduate, after reading The Only Guide You’ll Ever Need for the Right Financial Plan, by Larry Swedroe. This financial tip will enumerate her highlights for her peers and, hopefully, you.

 

1.      Stay within your means.  While it is normal to graduate with debt, proper debt management is crucial.  Don’t get over extended.  Shop for the best rates from quality companies.  Pay off your loans as quickly as possible.

2.      Appropriate insurance is vital to financial success.  People buy insurance to protect their property, their income, and their wealth by transferring risks they do not want to keep to an insurance company.  Shopping for insurance is the same as shopping around for loans – you need to search for the best rates from high quality companies

3.      Having a well prepared and detailed investment plan is a necessary condition for financial success.  A good investment plan helps eliminate fear and emotion when making investment decisions, as you will be more disciplined. You cannot predict the market but you can stick to your plan, including paying yourself first, dollar cost averaging, and diversification.

4.      Understand the difference between risk and uncertainty.  In finance, risk is calculated using historical data but the returns on your investments depend on the uncertain returns of the future.  This uncertainty demands a diversified portfolio.

5.      Related to the above, financial success requires one to make financial decisions with your head and not your stomach, as “stomachs rarely make good decisions”. Yes, one can spend a lot of time doing research and making calculations, but making informed choices is key for success. Gut feelings are not a good basis for decision making.  Use the information available to make an educated decision and decide which risks are worth taking and which aren’t.

6.      You have to be smart about which risks you do take.  Importantly, never invest more than you can afford to lose.  Sure, if you are worth 1 billion dollars, risking 1 million dollars with the hopes of making 2 million may not be that big of a deal.  If you are worth 1 million dollars, however, and are consider risking all of it with the hopes of it doubling, it is a huge deal.  If you are wrong, you are financially devastated.

7.      A well-diversified investment portfolio is paramount to financial success.  It must have appropriate asset allocations to fit your risk tolerance and time horizon.  As a young person, you should try to can take on more investment risk, but do so in a highly diversified set of equities.  In addition to equity investments, it is important to have proper asset allocations among stocks, real estate, bonds, etc.  A related point is the need to periodically rebalance the portfolio to make sure it reflects your investment plan.

8.      It bears repeating that a younger investor should be more heavily weighted in equities.  Equities (common stocks and stock mutual funds) are one of the few asset classes that consistently keep pace with inflation over the long run.  Inflation diminishes purchasing power but equities will help preserve wealth, in spite of inflation.

9.      Find the right investment management strategy, either active or passive.  Having actively managed funds means you try to stay ahead of the market with the hopes of performing above expectations.  On the other hand, passively managed funds, only require the investor to invest across each asset class and to rebalance.  Many are the advocates for passive investing, as you can earn market rates of return with low expenses and high tax efficiency.

10.  The final tip for a new college graduate is a key to long-run success.  Begin saving for your retirement.  Take advantage of the opportunities employers provide to enable you to lead a comfortable retirement life.  If your employer has a 401(k) program in which they match funds, make sure you set aside at least enough to get the full employer match.  Be sure to maintain a well diversified investment plan.  Understand the pros and cons of a Traditional IRA versus a Roth IRA.  (More information on IRAs is contained in an earlier Financial Tip (click here).)

 

Having a solid financial plan and sticking to it is crucial for financial success.  To assure the desired result; plan ahead, spend wisely, and understand your insurance and investment portfolio.  Stay on top of your financial life, so as to not be crushed by your financial mistakes. Along the way, never forget that the right decision depends on your definition of financial success - as it will set your path toward your financial success.  It will likely differ from your friends’. 

 

 

Paige Wheeler, Undergraduate student, MU School of Journalism

Robert O. Weagley, Ph.D. CFP^®