On the list of awkward things to do in a lifetime, this one has to be near the top – talking to your aging parents about finances. Dave Ramsey accurately talks about the “powdered butt syndrome” – once someone has powdered your butt they don’t want to hear what you have to say about money. Completely avoiding the financial discussions may be more comfortable, but likely is also more detrimental.
I came across an article by Debbie Cook entitled, “It might be time to talk to your parents about their finances” in the Wyoming Tribune Eagle. The article points out that as parents age children will need to assume an increasingly active role in their parents’ financial life. Photo by Steve Punter
Depending on your parents’ financial position, there are two main focus areas:
- Leaving a legacy – this of course assumes mom and dad have something to leave. Even if mom and dad own very little, their home, cars, and any other assets will be distributed.
- Managing finances during retirement – mom and dad may need to pace their finances to provide for their basic needs during retirement.
How much should children know about their parents’ savings, investments, insurance and assets?
On the one hand, it could be said that none of these are the ‘business of the children’. However, all of these things will immediately become the business of children when their parents pass away.
At a minimum children should know:
- The financial priorities of the parents. How would mom and dad feel the money was most wisely used?
- Where important financial documents are located. The child might not be privy to the content of the documents, but knowledge of location is important.
- Who key financial players are. Who does their taxes? Where do they bank? Who does their financial advising. Do they have a safe or safety deposit box? Where is it located? Who is the trustee of the estate?
- At some point it becomes more important to know where mom and dad hide things. Some parents like to hide things around the house – bonds, jewelry, and cash to name a few. At some point it would be helpful for the parents to spill the beans about the location of these top secret items.
How much should parents do to ensure their finances are in order?
- Parents should make plans for their estate. This includes includes having a will, trust, and powers of attorney. This is a loving act where children are allowed to grieve without the burden of unnecessary decision making.
- If they are not comfortable reviewing their financial situation with their children parents should review their financial position with a financial professional. Making sure parents have investments appropriate for their age is extremely important.
Since I have yet to approach either of my parents with these types of questions, (aside from doing this blog post that I know they both read) any ideas or suggestions for the best way to approach parents about their finances?