How to Handle the Investments of Aging Parents

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Senior couple getting financial advice from consultant at home
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By Kate Stalter

There's been plenty of attention on aging baby boomers and their lack of preparedness for retirement. However, boomers are also finding themselves in delicate situations when it comes to their parents' finances. It's not unusual for financial advisers and counselors to see elderly clients who no longer have the cognitive abilities to handle all aspects of their finances, including their investments.

Vicki Van Horn, executive director of the New Mexico Project for Financial Literacy, teaches a course in financial caregiving, providing families with strategies to help older relatives successfully manage their money. She says a common scenario is one in which a wife allows her husband to take care of all the couple's financial matters. Over time, if his cognitive abilities become impaired, his wife and adult children may not recognize the signs.

Van Horn cites the example of a friend whose father passed away, leaving his wife unaware that the house was in foreclosure and that he had maxed out seven credit cards. Although he suffered from dementia, his wife continued to let him control the couple's finances. "An issue is that when people suffer cognitive decline, they become resistant. They become overconfident," she says.

Greater Risk for Becoming a Victim

At least one academic study has confirmed the problem of financial overconfidence among senior citizens. In November, the Center for Retirement Research at Boston University released a study called "The Causes and Consequences of Financial Fraud Among Older Americans." The researchers found, among other things, that overconfidence regarding financial knowledge puts a person at greater risk of being victimized by financial fraud. The authors also cite earlier studies that show overconfidence to be a factor in poor investment decisions.

Meanwhile, another recent study, part of which was released in September, "Early Warning Signs of Financial Decline in Cognitively Normal Older Adults," identified characteristics that may indicate an inability to make good financial decisions. This research, financed by the National Endowment for Financial Education, was conducted at the University of Alabama at Birmingham. Researchers identified five early warning signs related to finances that may occur for older adults:
  • Slowness in completing financial tasks.
  • Missing key details in financial documents.
  • Problems with everyday arithmetic.
  • Decreased understanding of financial concepts.
  • Less understanding of risks in investment opportunities.

However, even if adult children spot some of these signs, it's often difficult for them to discuss such potentially sensitive issues with their parents. Lee Baker, president of Apex Financial Services in Tucker, Georgia, suggests having financial conversations outside the home in a neutral setting.

"Have the conversation in what I would describe as a 'safe zone.' I don't think it works to have the conversation at the kitchen table. Because if it's at kitchen table where you grew up, it's mom and dad's house, and they are in charge," Baker says.

Time for a Conversation -- or Two

It's crucial for children to communicate that they simply want to understand how to best carry out their parents' wishes when it comes to the money, Baker says. "You can do it in a way that lets them know you're not trying to take over their lives, but you can't know what they actually want unless they tell you," he says.

Another approach is to have a third party broach the topic. Stephanie Blakes, a financial planner and adviser at Wealth Development Strategies in Houston, says adult children should consider accompanying parents to meetings with financial advisors, estate attorneys or accountants.

In addition, she recommends parents share their financial information with their family using an online portal such as eMoney Advisor, Mint or Personal Capital. People can upload their financial documents, including statements from banks, brokerages, credit cards, mortgages or any other information children may want to monitor alongside their parents. "That's a simple first step toward figuring out what situation your parents are currently in without feeling like you're imposing on them," she says.

If sharing financial documents on an online portal isn't possible, Blake says adult children can ask parents to have them copied on brokerage or mortgage statements. That may not provide the full transparency a family would have if all financial documents were shared, but it lets children see whether parents have become incapable of making decisions in certain areas of their finances. Blakes refers to an example of a son who monitors his mother's finances online using the eMoney portal. He was able to help when she spotted a credit card charge for a doctor's payment she had forgotten about. "That also helps in fraud prevention, because if it wasn't a legitimate charge, at least you can see it quickly," Blake says.

Online Solutions

Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida, is a medical doctor as well as a financial adviser. Like Blakes, she urges clients to upload data to the eMoney Advisor portal or a similar platform. Whenever possible, she likes to meet with the adult children of her clients to make sure all of the family members are sharing the same information. McClanahan says the best time to begin difficult conversations about parents' finances is before the children see anything amiss. Unfortunately, she says, there is no particular age at which an individual will experience cognitive impairment.

"The first thing that starts to go is the financial decision-making process. People don't realize they are not as sharp as they used to be," McClanahan says. "They don't follow through on things like they should, and they're more easily taken advantage of because their brain isn't processing the details as well as it should be."

McClanahan says some research has shown that cognitive abilities can become affected as early as age 50. "But I've seen people sharp as tacks into their 80s. So as far as when to turn over the investing to someone else, it doesn't have to be a black and white, cutoff-line process," she says.

Like other advisers, McClanahan says the question of senior citizens' ability to handle their money goes way beyond simply stock and bond portfolios. "These conversations are not just about the investments but about all the finances and the health care decisions," she says. "Those are all the conversations that people need to have."

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