“The Independence Myth boils down to the idea that as each of us age, we will remain financially autonomous and manage all our finances ourselves,” said Suzanne Schmitt, vice president of family engagement at Fidelity Investments.
Busting the Financial Independence Myth
The reality, of course, is anything but. And this time of year, when families get together for the holidays, might be a good time for those of us in our 50s and 60s to bust the Financial Independence Myth with our parents — with sensitivity. One big caveat: Some of those parents will refuse to have such a discussion or, in cases where they have dementia, it will be too late to try.
Only 9 percent of the older adults Fidelity surveyed said they think they’ll ever lose the ability to manage their day-to-day finances.
Many people in their 70s and 80s need assistance handling their day-to-day finances and their investments, even if they won’t acknowledge it to their children.
The inability to handle financial matters is actually often the first sign of cognitive difficulties. In fact, financial decision-making ability peaks at age 53, according to a 2010 study published by the Center for Retirement Research at Boston College. And this can lead to elder financial abuse: The 2016 Safeguarding Our Seniors Study Allianz Life study found that about 20 percent of family and friends reported knowing an elder who experienced financial abuse, with an average loss of $36,000. People 65 and older with mental declines were 10 percent more likely to be elder abuse victims.
The Denial of Older Adults
Yet here’s the stunner from Fidelity’s survey of 1,024 people age 50 to 80 who had at least $500,000 in assets and worked with a financial adviser: Only 9 percent of the older adults said they think they’ll ever lose the ability to manage their day-to-day finances. Yet 60 percent of the respondents also said they’d witnessed a friend or family member lose their financial independence and 40 percent helped manage their own parents’ finances.
Why are so many older adults in such denial?
“We believe that paying bills and managing our spending is something we will hold onto until the day we die,” said Schmitt. “Older consumers are not comfortable leaning on an adviser or family for help paying bills, managing cash or spending.” Spending choices, Schmitt noted, signify what’s important to people and “their guilty pleasures.”
However, Schmitt added, “We found that older adults are more open to getting help with investments, because they don’t see themselves as experts. There’s no expectation that they will be able to do that on their own.”
There’s another reason some of our parents fall for the Financial Independence Myth. They don’t want to be a burden to us — their boomer and Gen X kids. In the Fidelity survey, 60 percent said they worry about burdening their families with the task of managing the finances.
What Their Grown Kids Say
But here’s the thing: Many of their kids want to be involved.
Fidelity also surveyed 1,043 adult children age 30 to 64 with at least $500,000 in assets and a financial adviser and who had a living parent age 60 or older. Eight in 10 of them said they very much want to be involved helping their parents manage their finances.
The 50/75 Rule
The answer to that question may be what’s known as the 50/75 rule. On average, children tend to get involved once they turn 50 or their parents are 75.
Fidelity calls this one of three “tipping points.” The two others: when a parent asks for financial assistance and when the adult child notices a change in the parent’s circumstances.
A Reminder for People in 50s and 60s
To me, the Fidelity survey is also a reminder for those of us in our 50s and 60s to take proper steps for the day when we might not be able to manage our finances. That means:
- Naming beneficiaries for all your financial accounts and insurance policies
- Having an up-to-date will
- Having a durable power of attorney form that names someone to make financial decisions for you if you become incapacitated
- Having a health care power of attorney (or advance directive) document, to designate a trusted person to make health care decisions if you can’t
(This article by my colleague Emily Gurnon has more details and resources on the power of attorney documents.)
“By the time an adult child is 50 and a parent is 75, both should have designated beneficiaries, ensure that their wills are current and complete and have health care proxies,” said Schmitt.
Getting a Financial Adviser Involved
If you or your parents have a financial adviser, include him or her in the critical advance planning with your mother and father. “There’s a tremendous opportunity for advisers to get in and help facilitate these conversations and to get more into the brass tacks,” said Schmitt.
Rather than contacting your parents’ adviser to head off a potential financial independence problem, however, Schmitt offered a suggestion. “Reach out to your parents and say, ‘Before we have a crisis, can we get a better handle on what’s important to you and schedule an appointment for me to meet your financial adviser so the adviser knows who I am?’”
That meeting could be one of the best gifts you and your parents ever give each other.