Aging parents can experience unique challenges when it comes to money—especially if they’re beginning to show signs of cognitive decline. Here’s how to help your aging parents protect their finances while being mindful of their wishes.
One of the downsides of getting older is watching our parents age, too. Aside from experiencing physical health challenges, their personalities may change, or they may become more forgetful over time. This not only puts a strain on your relationship; it can also make it more difficult for them to handle basic responsibilities.
Unfortunately, one in three seniors dies with Alzheimer’s or another form of dementia, according to the Alzheimer’s Association. Meanwhile, the CDC reports that one in nine adults is currently experiencing subjective cognitive.
That means if your parents are of a certain age, chances are they’ll experience some degree of cognitive decline during their lifetime. Thus, it’s important to recognize the warning signs, so you can help your parents avoid financial missteps, scams, and other potentially harmful decisions as they age.
Diminished financial capacity simply refers to the inability to make responsible financial decisions.
According to research from AARP’s Public Policy Institute, “Financial capacity is one of the first abilities to decline as cognitive impairment encroaches. Yet older people, their families and others are frequently unaware that these deficits are developing.”
Warning signs of diminished financial capacity may include falling behind on bills, lack of organization of important documents, difficulty with basic math, and risky decision-making in general. In extreme cases, someone with diminished capacity may begin making drastic changes to important financial documents, like naming new trustees or beneficiaries.
On the other hand, someone showing signs of diminished financial capacity may avoid financial decisions altogether. If you believe your parents can no longer make sound financial decisions, you may want to consider putting safeguards in place to help protect them from unnecessary financial loss.
If possible, it’s a good idea to prepare for the possibility of diminished financial capacity well before you see warning signs.
First, be sure to have an open and honest conversation with your parents about their financial wishes and plans. You may also want to document your parents’ intentions with a their financial advisor or attorney. That way if they do start to decline, there are clear instructions in place for how to manage and protect their finances going forward.
In addition, consider making a list of important accounts, documents, and passwords as soon as possible. Tracking this information down can be challenging if your parents are experiencing memory loss.
If your aging parents are showing signs of diminished financial capacity, they aren’t just vulnerable to potentially risky decision-making. Elderly people are generally more likely to fall victim to financial scams, abuse, and exploitation.
In fact, up to five million older Americans are abused every year, according to the National Council on Aging. As a result, the annual loss by victims of financial abuse is estimated to be at least $36.5 billion.
To help your aging parents protect their finances, first make sure they’re aware of the common scams targeting seniors and encourage them to be cautious. For example, remind your parents to be skeptical of unsolicited offers and to never give out personal or financial information to strangers.
In addition, consider setting up fraud alerts with the major credit bureaus on their behalf. This can help you monitor their accounts for unauthorized activity and catch identity theft and fraud early.
The U.S. Department of Justice defines financial exploitation as the illegal or improper use of an elderly person’s money, property, or other resources for monetary or personal benefit, profit, or gain. But financial abuse may also include less obvious offenses, like a caregiver withholding or negligently mismanaging funds.
Though it may be uncomfortable, having an open and honest conversation with your aging parents about these risks is typically a helpful first step. However, you’ll also want to be able to recognize the warning signs in case they fall victim to financial elder abuse.
According to the National Center on Elderly Abuse (NCEA), common signs of financial elder abuse and exploitation may include:
Beyond erratic financial behaviors, the NCEA cites malnutrition as one of the potential signs of financial elder abuse. Emotional changes such as depression, irritability, and withdrawal may also indicate abuse.
In many cases, our parents were the first people to teach us about money—how to earn it, save it, spend it, and even think about it. So, when parents begin to show signs of decline and can no longer manage their finances on their own, it can feel unnatural to take the reins. And oftentimes, they’re less than willing to release them.
Nevertheless, designating a trusted financial power of attorney while they (or you) are still of sound mind can help your aging parents protect their finances long-term. It can also help prevent the wrong person from gaining control of their finances in the event of diminished capacity.
In addition, consider appointing yourself or someone you trust to periodically review your parents’ financial accounts, investments, and important documents to ensure everything is in order. This person can also be an authorized contact in case a bank or financial institution notices questionable activity on one of your parents’ accounts.
Caring for aging parents can be emotionally and mentally draining. Though you may feel responsible for their wellbeing, you don’t have to go it alone.
A financial advisory firm like SageMint Wealth can help your aging parents protect their finances and make sound decisions with their money. Many of our clients are women, part of the LGBTQ+ community, and individuals in the technology space who are juggling the responsibilities of demanding careers, business ownership, raising children, and caring for aging parents.
If we can help you and your family sleep better at night knowing an experienced advisor is overseeing your parents’ finances, please contact us. We’d love to hear from you.