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Personal Finance FAQ

Are Your Parents Losing the Ability to Deal With Money?

Nigerian Scammer #1
He is NOT your parents’ friend.

Do you worry about what’s going to happen to your parents as they get older? Are you concerned that at some point, they’re going to think that there really is a Nigerian prince holding their unclaimed money? Anxious that a less than scrupulous salesman is going to sell them a high commission variable annuity product they don’t need? Would you like to

  • Be able to identify when they’re susceptible to fraud and scams?
  • Learn how to have “the conversation” with your parents?
  • Rest easy that your parents’ bills are being paid on time?

Read on to see the steps that you can take to help ease the transition into the autumn years.

It’s not just scammers who are after your parents’ money, but the scammers do take a lot of it.

When my grandmother got older, her mental capacity diminished as she aged. When my parents finally had to move her into a care facility, they went through her records to assist in their Medicaid application for her. Much to their surprise, they found several credit cards and tens of thousands of dollars in credit card debt. This was for a woman who lived on Social Security and had no other assets. So, when my parents got conservatorship over my grandmother, they called the credit card companies and told them to go jump in a lake. Good luck suing an indigent woman in a care facility and on Medicaid for debt collection. I hope that the analysts who decided that she was a good credit risk have discovered their true career calling outside of credit risk analysis.

Elder fraud, true fraud as differentiated from the issuance of credit cards to poor old ladies who do not need credit and can’t repay it, is a serious problem in the United States. According to a study by Virginia Tech, elder fraud cost over $1.7 billion in 2017. This fraud isn’t just from strangers, who comprise 51% of the fraud. Friends, family, and neighbors commit 34%, with unscrupulous businesses taking 12%, and Medicare/Medicaid fraud accounting for 4%.

Some of these instances of fraud include:

  • Unclaimed funds scams, or 419 scams, usually perpetrated by e-mail
  • Being significantly overcharged for items which have much lower values
  • “Loans” to people who claim hardship of their own
  • Being sold inappropriate financial products such as variable annuities with long lock-in periods and high commissions

It’s Time to Have the Conversation

Being ignorant of your parents’ financial situation will serve you no good. In fact, in many states, family members who have assets can be on the hook for the nursing home care of their relatives. You will need to check what your individual state’s laws are regarding filial piety. The general rule of thumb for when it’s time to have “the conversation” is that either you’re 40 or your parents are 60. This isn’t an easy conversation to start. As the child, you’re very wary of trying to seem like you’re interfering with your parents’ business. The parents remember that they changed your diapers. Many times. Still, just as your parents had the fortitude to have the birds and the bees talk with you when you were young, you need to have the fortitude to have this discussion with your parents.

There are many approaches to broaching the conversation. I’m an advocate of the direct but reassuring approach. You want to make sure that they’re taken care of, and you’re not after their money. Here some of are the things you need to cover:

  • Where are all of the accounts and the important paperwork? The last thing you want to do when you’re grieving is to have to do a CSI investigation to try to find everything while the estate gets tied up in probate.
  • Long term care insurance. Do they have it? What does it cover? If they don’t have it, they should seriously consider it.
  • What’s in the will? The fewer surprises there are at the opening of the will, the better. Furthermore, if you can’t wait to receive an inheritance, you’re sick. That means you’re looking forward to someone else dying.
  • What are their bills and how do they get paid? More on this further down.
  • What are their desires for when they can no longer independently take care of themselves? Do they want to live in assisted living facilities, or do they want in-home care? In either instance, they should be scouting out their options. You do not want to have to try to find an assisted living facility when they need to move there now, as you’re going to be leaving it to chance hoping that there’s an available spot in a place where they want to go (or you’d want them to go).
  • Who are their medical care providers? Oftentimes doctors will have the first inclination of functional cognitive ability decline, and they need a pathway to talk to you if required.

Spot the New Guy

Sadly, greed is innate in many people, and there are those who get overcome by it. They’ll look for easy targets, and often the easy targets are the elderly. How can you tell if your parents are in the crosshairs of these scum?

  • New, unknown friends of a different age demographic suddenly appear in your parents’ lives. They might be legitimate. They might not be.
  • Similarly, new e-mail connections pop up. If your parents mention new friends they found on the Internet, something may be amiss.
  • Complaints about higher bills. Do they mean the electricity bill was $10 higher this month, or do they mean that they’re sending a bunch of money to Nigeria? It’s time to ask.
  • They come to you for money. If you had “the conversation” above, you should know about your parents’ financial means. If you didn’t expect them to need money yet they now are asking for it, that’s a sign that someone is siphoning their money.

Automating Finances Can Help Mitigate the Risk

Early stage cognitive decline is not easy to detect, yet can have serious financial impacts. “Senior moments” where one momentarily forgets where the keys were aren’t just limited to finding the keys or the glasses. They can often include managing the checkbook. As the Drs. Triebel, Martin, Griffith, and others point out in the journal Neurology, the functional capability to manage finances can decline rapidly, even in a one year period, long before full-blown signs of dementia or Alzheimer’s show up.

What this means for you is that it’s entirely possible for your parents to appear to be functioning quite well while they’re unaware that they’re letting their finances slip. They can carry on conversations, go to the store, go out to eat, and take care of themselves, but the cognitive sharpness required to handle finances is no longer there, and sometimes it’s not apparent until the electricity is shut off or there’s a foreclosure notice on their home.

The best way to prevent this from happening is to automate the finances as much as possible. By setting up a funnel of money, they will also be somewhat insulated from scammers.

  • Set up a funnel of funds. One flow of funds should go to an account where all bills are paid automatically. The other flow of funds should go to the spending account, where variable expenses occur.
  • Set up automatic bill pay. Get the mortgage, HOA fees, utilities, insurance, and any other recurring payments set up with an automatic bill pay.
  • Set up payment alerts which also go to your e-mail. That way, if a payment is missed, you know about it and can engage your parents in a discussion about what happened.
  • Set up transfer alerts which go to your e-mail. If there’s suddenly a big transfer into a spending account, you’ll find out and you can ask why the transfer occurred.

Setting up these monitoring systems sounds a little Orwellian. You’re not looking to micromanage your parents’ lives. What you are looking to do is to identify anomalies and stop potential problems before they become big issues.

All of these steps will represent a big change in the relationship between you and your parents. They will take time and trust and will not occur overnight. Start having the discussions at an appropriate time so that you can ensure that it is all in place long before potential problems may arise. Neither you nor your parents want their hard earned retirement funds going to pay for the “problems” of their “new friends” in Nigeria.

Have you had “the discussion” yet? How did it go? Tell us about your experiences in the comments below!

By Jason Hull, CFP®

Jason Hull, CFP®, was the co-founder of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies. He also was the co-founder of open source search consultancy OpenSource Connections, a premier Solr and ElasticSearch firm. He and his wife FIREd (financial independence retire early) at 46 and 45, respectively. He has a BS from the United States Military Academy at West Point and a MBA from the University of Virginia Darden Graduate School of Business.

You can read more about him in the About Page.

8 replies on “Are Your Parents Losing the Ability to Deal With Money?”

I worry about having this talk with my own parents. The added complication is that my dad is still taking care of my grandmother’s money, which means that a thorough discussion of their personal finances and estate plans will also include Grandma’s personal finances and estate plans.

This situation must happen frequently, right?

If you’d asked “this situation should happen frequently, right?” then the answer would be yes.

According to Fidelity’s research, the answer to the question that you asked is no, as there’s quite a disconnect between what parents expect and believe about their children and vice versa.

I also covered the cognitive decline in my U.S. News & World Report article about the financial risks of getting older.

The last thing you want is to hear or utter “we thought you were going to…”

My parents have a lot of money sitting in cash and refuse to invest or “risk” any of it. I honestly have no idea how to help them with their finances because 1) the refuse my help and 2) they refuse to take any risk. Oh the joy of dealing with your family 🙂

This is going to sound like a self-justifying pitch, so be warned!

In a situation like that, you could consider a third party expert (e.g. a legit financial advisor) for some consultation because the ‘rents might be willing to listen to advice from an expert and act (e.g. get into the market or annuitize) where, even if it’s the exact same advice you’d give, they won’t take it because it comes from the person who just X years ago (always perceptively less than the actual passage of those X years) was in diapers getting powder on his butt. The primary problem is the lack of certifiable credibility. Because of that lack thereof (with all due respect; you could run circles around me in developing anything more complicated than “Hello, World!” in any number of software languages), your parents are firing up their anterior cingulate cortexes like crazy. That’s the part of the brain which is associated with error detection, and it will cause them to either find or rationalize errors in whatever you tell them. On the other hand, speaking with someone who’s certified reduces the activity in the anterior cingulate cortex, making them more likely to heed the advice.

Another approach is self-affirmation, although you’ll have to subscribe to my 52 week Financial Game Plan to learn just how self-affirmation affects how you deal with money.

You know, I’ve always been annoyed at how skeptical my father is of everyone & everything. But, after reading this article, it gives me a new appreciation for his skepticism as I think it helps him not fall for any of these scams.
Thanks for the fresh perspective! It’s nice to see my parents through a different lens.

Hey, Agatha!

To quote Stone Cold Steve Austin, “don’t trust anyone.” Or, to quote Ronald Reagan, “trust, but verify.”

I have an upcoming article on how you can overcome Monkey Brain by being intentionally skeptical. Your father just beat me to the punch! 🙂

It does worry me that my parents will misuse their finances or get taken advantage of in some way. In many ways I do not know how to help them or advise them on their financial planning and investing.

Hopefully my list is a good start. You can always encourage them to sit down with an hourly, fee only financial planner who isn’t going to see them as a walking sack of money and try to get a bunch of assets under management fees from them. Whether or not they’ll view you as an adult who has useful opinions and take your advice is another story! 🙂 In my experiences, most parents do come around to the notion that having “the talk” with their kids about the money and their estate wishes is a good idea. But, generally, you are going to have to initiate that discussion. Nobody likes to bring up the topic of “hey, when I die…”

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