Age takes a toll on the body. That’s no secret. Sore muscles, creaky joints, and less mobility are expected. Age also takes a toll on the mind, and while this reality often gets discussed only behind closed doors, diminishing mental capacity happens to pretty much all of us. As the ability to think clearly, reason, and respond starts to falter, making crucial financial planning decisions can get more challenging and the scope of work for your financial advisor can, and probably should, expand.
Facts Show Financial Literacy Declines
Financial literacy is such an essential part of a well-planned future that Harvard College provides a financial literacy guide for its students with the understanding that everyone should know the basics of credit, savings, investing, and budgeting. But as we age our financial literacy may diminish.
A study¹ through the Center for Retirement Research at Boston College, that assessed a group of people in their 80s, found that declining cognition is associated with a decline in financial literacy and decision making. However, the participants lost no confidence in their ability to manage their finances. Over half of all elderly individuals with significant decline do not seek help. That’s scary.
You know the scenarios. Your spouse who you always depended on to “handle the books” is gone and you have no idea as to the state of your finances. You retired and blissfully don’t have to know what today’s date is or even what day it is, but now you find yourself losing track and missing due dates on bills. Maybe new technology is intimidating for your parents and they choose to still write checks, but sometimes forget to sign them, or they get lost. These situations are all too common and can quickly become serious threats to sound financial footing.
When a Financial Advisor Turns to Financial Caregiver
How can your financial advisor become your family’s financial caregiver?
If your financial advisor has not brought up the subject, then start the conversation with your financial advisor well before the need arises. Make aging and diminished capabilities a part of the conversation. At Pacific Northwest Advisory, we promote the development of a family office and encourage our clients to not leave the financial planning in the hands of just one person, but rather include spouses and/or adult children to ensure everyone’s best interests will be met now and in the future. Educate your descendants so if they need to stand up in your place your financial history won’t be a mystery.
Identify one person you can trust to help you with money matters. That person can also be tagged as your power of attorney, although the two don’t have to be one in the same. Begin to share details of your finances now, when you can clearly explain them. That will take the guessing game away from your trusted person if or when they have to step in to start managing your finances.
Appoint a power of attorney. The American Bar Association provides a thorough description of this role. From an advisor’s perspective, your power of attorney document should spell out that this person is given permission to act on your behalf for day-to-day financial matters. The scope of the role can be expanded to include estate planning and gifting. Work with your attorney to develop the power of attorney document that will best protect you, your family, and your assets.
Once appointed, we like to have your power of attorney attend meetings with you and be copied on the correspondence. Having a second set of ears and eyes is really in your best interest.
Take advantage of technology to monitor your finances, taxes, accounting and more to make it easier to spot mistakes. If you are intimidated, seek help and make sure your trusted person has sign-in capability on the accounts so they can help monitor activity. TechRadar offers some great advice on the best personal finance software that’s out there right now.
Financial planning should become a family decision as the head of the house ages. There are many facets that your financial advisor will help you consider from the personal side such as long-term care options and life insurance to business strategies like estate planning and philanthropy.
PNWA understands that making decisions as our loved ones age is difficult and we will go above and beyond to ease the decision-making process. First and foremost is to secure long-term care that will help ease you or your parents into their next phase of life. We can help search for the best nursing home care or assist you in setting up a share-the-care calendar for your family and professionals. If the sale of a house is part of the transition, we will not only work with you on an estate sale, but we can help find and evaluate moving companies. This may seem out of the realm of expertise for a financial advisor, but PNWA has been doing this for years. Our clients become like family and easing the burden is something we’d do for any family member.
¹Gamble, Keith, Patricia Boyle, Lei Yu, David A. Bennett (2015) “How Does Aging Affect Financial Decision Making.” Center for Retirement Research at Boston College, Number 15-1.