Unfortunately, in most families, talking about finances is an akward subject, one that never ends up being properly discussed and creates strange situations for everyone involved. Sadly, it often ends when someone passes on to another life. Sometimes, it’s when a dad passes away and the mom finally is forced to admit she has no idea how to manage things, how much she has left. Other times, you end up finding out too late that while you thought their finances were in order, they are actually living through a lot of stress wondering if they’ll have enough money to live for a few more years. Sometimes, after a market crash, they end up panicking, selling everything at the bottom of the market and thus incurring major tax losses, etc. There are many different possible situations and very few of them end up being enjoyable.
It’s not easy and I don’t pretend to have the solution but I thought it might be interesting to offer my thoughts and also get yours. Here are my top priorities:
It’s not necessarily easy to get involved in your parents finances. Chances are that they will feel like they are more than capable of dealing with things or maybe that it’s none of your business. I think it’s important to offer your help, ask questions and show interest. You might not get much in response but it will end up making things much easier for the day that they will end up having some questions.
Get As Much Information As You Can
Once your parents do start sharing information, I think it’s useful to know how much they have saved, what kind of investments and insurance policies they hold, any reitrement or pension accounts, etc. Over time these will change but being able to keep in mind the type of setup that they have will help a great deal.
Find Out Who Is Managing Their Things
I think it’s useful to know who is managing your parents money, what they are doing, etc. Initially, that will not be of much help but over time, as your parents age, it might become very useful to know what type of people they deal with and maybe eventually start going to some of the meetings. Not only will it help you get a better idea but as you can unfortunately see, your parents will start losing both memory and some of their abilitty to act rationally over time. Being able to better understand how they’re doing in regards to their finances can be a big help.
This is certainly not an easy decision. Some decide to do it and I’d probably be fine doing it if asked. I think it can only be done in a very careful way though. I would not do it without a few ground rules:
-Very clear rules on the investing objectives
-Agree to schedule regular meetings to discuss how things are going
-In the end, it’s their money: as wrong as you might think they are sometimes, you can try discussing and making your point but if they want to get out of an investment, etc.. They are in charge, it is their money after all.
The pros of course are that you would then know exactly how the finances are (the investment part of them I mean), would be able to manage more efficiently than what they might get (less fees). It could be done by building an ETF portfolio, dividend investing or other methods but I think it’s important to remain very conservative. Remember that your parents are not trying to hit homeruns out of the park. They simply want to be able to keep going at bat for a few more decades.
The downsides of course are that if things are not clear, especially in regards to the investing objectives, it can certainly create conflicts. If they want to have little to no market fluctutations, it’s important that you know.so.
How To Start Managing The Money
There are many different ways to get started but I think the best way is to have them open a brokerage account that you have access to trade into. Then, they can slowly start to deposite some money into that account while keeping everything else as is. That will ensure that you both can see how things go from a small scale and either increase it or stop when you can see how things go.
Would You Do It? How do you help your parents manage their money if at all and do you have any plans or expectations for how things will be done as they get older?