How to Help Aging Parents Manage Money When Prices Keep Rising
As our parents age, they may become more dependent on others to handle what were once routine tasks. Managing money, including budgeting, bills, and investments, is among the most important of these tasks. Unfortunately, it can also be among the most stressful, especially for the adult children who try to help their parents remain in good financial health.
Speaking of stress, persistent inflation continues to hammer the U.S. economy. Consumer inflation increased 8.5% over the last 12 months ending in March – the highest spike in 40 years.
That means tighter budgets for everyone, especially seniors on fixed incomes. More than 15 million Americans aged 65 or older were economically insecure as of March 2021, according to a report from the National Council on Aging.
If you have aging parents, you may be concerned about their financial well-being. Here’s some advice for starting the conversation about helping them manage money during a period of prolonged inflation.
Have a Frank Conversation With Your Parents
Direct communication is the most productive way to address finances. It doesn’t mean your parents will be receptive to any changes you suggest, but putting all the cards on the table will let you know where they stand and how you can help. Depending on their mental acuity, they may not realize how a sharp rise in prices for gas, groceries, and clothing is eating into their monthly budget.
Tips for having the money management conversation with your parents:
- Start the conversation early
- Be direct but also sensitive to their concerns
- Discuss how their spending may need to change due to inflation
- Locate and/or complete important documents such as wills and estate plans
Plan for Future Needs
While making decisions for the present financial picture of your parents may be top of mind, you should consider the future as well. That means being prepared for what happens to their money after they die.
“If your aging parent does not have a will or estate plan, you should convince them to meet with an attorney and begin the process,” says Steve Wilson, founder of Bankdash, an independent publisher of news, research, and ratings on financial institutions.
“Other important legal documents should also be completed, such as a power of attorney or a living will. Having these documents on hand will let you make quick decisions and act in the case of an emergency.”
Work to Stretch a Fixed Income
Millions of seniors are on fixed incomes, and any sudden changes to spending – or in this case less purchasing power due to inflation – can have an outsized impact on their finances.
“Once you have a good understanding of your parents’ financial picture, you can work with them to develop a budget,” says Andrew Bryant, founder of Credit Weld, a website dedicated to improving financial health.
“This budget should be realistic and take into account the expected rate of inflation. Inflation can reduce the purchasing power of fixed income securities such as bonds.”
As prices rise on goods and services, your parents may need to adjust their spending to maintain their standard of living. For parents who prefer to use personal checks, Axos Bank offers an interest-bearing Golden Checking account designed for customers 55 and older that includes free checks. Children can be added to the account and to the checks to help with money management and paying bills.
If your parents are receiving investment income, they may want to consider adjusting the amount they receive each month to ensure they have enough to compensate for inflationary costs.
Half of Americans aged 65 or older who live alone are having difficulty getting by on $27,000 a year, according to the Elder Index, a tool created by the Gerontology Institute at The University of Massachusetts at Boston that measures cost of living.
Some seniors have resorted to cutting back on meat and vegetables, driving less, and giving up on gym memberships in favor of home workouts. By itemizing their expenses, your parents can more easily see where their money is being spent each month and have a better picture of where cutbacks can happen. When tracking expenses, make sure to look at subscription services, especially ones your parents may have forgotten about or don’t use.
Consider a Power of Attorney
In many situations, it may be necessary to legally make financial decisions for your parents. Power of attorney forms cover a wide variety of specific circumstances and can be tailored to fit the needs of you and your parents. In power of attorney terms, your parent is the principal and the person acting on their behalf is the agent.
Laws governing power of attorney can differ from state to state, and while those differences are often minor, it’s a good idea to speak with an attorney who knows your state’s laws.
Research the different types of powers of attorney to find the best fit for you. For example, a general power of attorney is broad and is often used for people who still have control of their faculties but would rather have someone else handle their affairs. It’s revoked when the person is deemed incapacitated. Conversely, a durable power of attorney remains in effect after incapacitation.
Types of power of attorney forms include:
- General: Broad rights but can be revoked by principal at any time
- Durable: Remains in effect after principal’s incapacitation
- Springing: Not effective until principal’s incapacitation
- Medical: Gives authority to make decisions about principal’s health care
- Limited: Limits decision-making authority to specific tasks
Don’t Lose Track of Your Own Finances
Yes, this is about helping your aging parents manage money. But especially during a time of significant inflation, it’s essential to stay focused on your own finances while helping your parents. Don’t spend so much time throwing someone else a life preserver that your boat sinks.
The Axos Bank Personal Finance Manager can help you keep track of your own expenses and add external accounts to your dashboard, giving you a bird’s eye view of all your finances in one convenient location.
Having a conversation with your parents about managing finances may not be easy. But with the right approach and a solid plan, you and your parents can enjoy more peace of mind regarding their short-term and long-term financial security.
How to Help Aging Parents Manage Money When Prices Keep Rising
This blog was published by Axos Bank on June 01, 2022, and last updated on June 01, 2022.