Teaching Your Parents About Money

I notice that there are a lot of articles on how to teach your kids about money which seems like a good thing.  But, I also noticed that there are relatively few articles or pieces on teaching your parents about money.  This is unfortunate since financial planning decisions over retirement, healthcare, and other issues seems critical.  I was thinking about this because of my friend Ann, who is not my parent, but a parental figure in her late 50′s.  Annie is not married and has no kids.  She has worked hard her whole life and has generally thought of herself as financially prudent.  The problem is Annie’s financial picture is not so great.  Althought she has reasonable income and some mutual funds, Annie has grossly under-saved for retirement.  2 career changes, going back to school for a self-funded graduate degree and spending on home refurbishing, traveling and gifts have crowded out financial savings.  I will admit that I have been hesitant in offering too much advice or delving too deeply into Annie’s personal details, but If I become more comfortable, this is what I would say, as someone who’s a generation younger:

--Get your records in order – my own parents, while in much better financial shape than Annie, have not embraced the internet, Quicken or Mint, or even excel and while I think they have good knowledge about their financial affairs, would be hard hit if there were an inadvertent fire, or loss of records.  If your parents are not computer savvy, help them to digitize the important records and make sure the records for things like Social Security and Medicare are in good shape.

–Be realistic about social security-- I think people in my generation (generally called Gen-X) and younger do not expect that social security will be able to pay its full obligations.  For many, like me, this caused an emphasis on private retirement savings early.

--Risk levels need to be adjusted with age – I’m fairly certain Annie’s portfolio was almost entirely in stocks during this recent market downturn.  Like many older Americans, she is reconsidering retirement plans and panicking a bit.  Rather than panicking and switching entirely to bonds at the market bottom, it’s better that Annie have a plan to reallocate her portfolio after it recovers some losses, and to allocate new savings into a more balanced portfolio.

–Embrace the recent frugal and sustainable trends — I’m not sure if it’s accurate, but certainly environmental sustainability seems to have a generational component.  Thinking of spending less and saving more throught the lens of simplicity and environmental sustainability is something that most of my friends are just now learning and seeming to embrace.

–Learn to be selfish — Annie is extremely generous, almost to a fault.  She spends lavishly on her nieces and nephews, giving them things and experiences (like summer camp) that she did not have when she was their age.  While I admire her generosity, I have no doubt her nieces and nephews would not even notice if she limited the gifts to occasional treats.

posted at this week’s Carnival of Personal Finance