Why talk with your parents about money
Chances are your parents taught you your first lessons about money and how to manage it.
Maybe that’s why it can be awkward, as they’re aging, to talk with them about their money. However, there are several good reasons to do so:
- Prepare for the unexpected
- Get your parents input while they’re still able
- Help protect them from fraud and scams
- Help protect your financial future
According to Home InsteadOpens a new website in a new window, 45% of sandwich generation caregivers have cut expenses or shifted budgets to meet responsibilities as a caregiver for parent(s) and/or in-law(s). 23% have quit a job that made it too hard to be a caregiver. 48% of those who work say their employer has warned them their caregiving responsibilities are jeopardizing their employment.
“Often what you see, is that the child who does the caregiving is disadvantaged financially,” Nahanni Ackroyd, CFP, RIS, Ackroyd Financial Services said. “Ideally, you could have a conversation with the parent while they still have capacity, to say, hey, you know what? This child has, or will need to, give up an income of $50,000, $60,000, $70,000 a year to take care of you. Do you want to, or are you able to, compensate them for that? I would love to see that - it's an ideal situation.”
When to talk with your parents about money
You should have “the money talk” with your parents sooner rather than later, while they’re physical and mental health is still good. Starting the conversation earlier can help you when you have to have more difficult discussions later in their life.
Choose a time when everyone is relaxed and rested in familiar surroundings.
Sometimes life events such as a personal health scare or a situation with another relative or family friend may provide an opening to begin the discussion.
How to approach financial conversations with your parents
Start by making your intentions clear. Confirm your goal is to talk about their future and what their wishes are. It’s not about controlling their finances or figuring how large your inheritance will be.
Include your siblings so everyone understands the same information.
Suggest working with a lawyer or advisor if your parents want an expert, impartial third party to help with the conversation.
What topics should you talk about with your parents?
Your list of things to discuss with your parents should include:
Estate planning
Confirm your parents have powers of attorney and wills completed and up to date and confirm where they are.
Do they have any trusts set-up? Are there charities they want to support?
Talk about their wishes regarding funeral arrangements including cremation, burial, etc. Have they done funeral pre-planning? What is the budget for their funeral?
Living arrangements
Do your parents intend to downsize their home at some point in the future? If so, would they like to move to a retirement home or a long-term care home? What are their wishes for end-of-life care and how will it be funded?
“A common problem, or challenge I see is people who have put all their assets into real estate and they’re sitting on, or living in, this huge asset that’s not liquid,” Ackroyd notes. “I try to talk to clients as we’re talking about retirement planning and retirement cash flow, about that willingness to sell earlier on in their life.”
Finances
What assets and debt do they have? Where are their various accounts? Do they have insurance policies? Where does their income come from (government benefits, pension, etc.)? What are their regular expenses. Who is their advisor?
Health
How is your parent’s health? Do they have ongoing health issues? How do they cover their healthcare costs? Will they require long-term care? Do they have or require critical illness insurance, disability insurance or personal health insurance?