Money 101: How To Help Your Parents Through The Recession

It seems like the floundering economy has taken its toll on everyone in some way or another. Maybe you ended up in the unemployment line, or maybe your pantry’s stocked with nothing but store-brand food. And while the financial environment may have led you to cringe whenever you look at your checking account statement, our generation is lucky in that we have plenty of time to recover before we’re ready to start thinking seriously about retirement.

But what about your parents? If they haven’t retired already, they’re probably getting close, and they have much less time to recover if the economy took their finances down with it. Knowing how to help your parents can be tricky, but they may be at a point where they really need you.

For tips on how to understand and support parents whose retirement plans have been derailed, we talked to Suzanna de Baca, who has over 17 years of financial experience as Vice President of Wealth Strategies at Ameriprise Financial.

Understand where your parents are coming from. We generally think of the economy in the light of how it affects us personally, such as how it’s impacting our ability to find a job. But in order to understand your parents’ reality, you’re going to have to step into their shoes. De Baca points to a survey recently released by Ameriprise to give you an idea of how the economy is affecting people at or near retirement age. The study was originally conducted in 2005 and looked at consumers’ attitudes, ambitions, and preparation for retirement. In order to understand how these attitudes have changed, the study was conducted again in 2010.

“The New Retirement Mindscape IISM study showed that the impact on people who are 3-5 years away from retirement has been quite significant. While this stage in the retirement journey used to be synonymous with a sense of excited anticipation, we’re now seeing people really hesitate and question if they’re ready,” de Baca says. “Similar to what we see with people who are approaching retirement, the consequences are both emotional and financial. Looking again at the findings from our study, we found that the recession has muted the optimism and excitement people once felt during the first year of retirement. Some of this is likely a by-product of ‘forced retirements’ – due to layoffs and career setbacks.” Even if your parents are still employed and seem to be heading smoothly towards retirement, know that they are likely more anxious than they appear, and that reduced employer contributions to employee-sponsored plans or even a pressure to retire before they’re prepared may have them concerned.

Watch for signs of trouble. If you and your parents are close, it may be worth simply asking them if the recession took a toll on their plans. But if not, you may need to watch for indications that they’re having problems, especially if pride could be in the way of them fessing up. “Sometimes financial difficulties are obvious and sometimes they are harder to spot,” says de Baca. “Obviously, if a parent has lost a job or had hours cut, this could result in financial difficulties.”

But even if they’re both still employed, there may be signs they’re in serious trouble. “Two of the most common symptoms of financial problems are unpaid bills and credit debt. You might get phone calls from creditors or see bills come with late notices on the envelope. You might notice bill piles growing, or Mom or Dad charging items for which they normally pay cash. These can be clues.” When you visit the ‘rents this holiday, you don’t want to snoop, but you may want to watch for some of these danger signs, especially if you already suspect they’re having problems.

”In addition, if you notice any big changes in spending behavior this could be a red flag,” says de Baca. “While cutting down on spending could indicate responsible behavior or new-found discipline, it could also mean a very tight budget that is causing problems.”

Have a family meeting. Once you’ve observed enough clues to make you worried about your parents, you’ll have to decide how to handle the situation. This can be really awkward, and feel like a total role reversal with the people who taught you how to balance your first checkbook. “If your parents are very private about money, this can be a sensitive topic,” cautions de Baca. “But approaching the conversation with concern can usually open the door. For example, you might say, “I’m concerned about your finances because credit card companies keep calling.””

Still feeling awkward about how to start the conversation? Try to ease into it. “Another good approach is to discuss a news report on financial difficulties and use this as a conversation starter, such as ‘I read an article about some college kids’ parents struggling with their mortgage. Has the recession affected how you meet your financial obligations?’” de Baca suggests.

Suggest they talk to a financial adviser. Don’t assume that your parents don’t have everything under control, but if the conversation leads you to feel like they’re struggling, try to guide them towards a financial adviser. It isn’t your job to solve their problems, just to be there for them and maybe guide them towards the help they need. “People who work with a financial adviser, and who have a written financial plan, are not only taking more steps to prepare for retirement – they also feel more confident about it,” de Baca says. “With this in mind, we recommend that people seek out a financial professional who can help them develop a written financial plan, whether they are approaching retirement, or have already retired. Obviously, the sooner people have established goals and a plan to work towards them, the better. However, it is seldom too late for this to be beneficial. A financial adviser may able to help them find ways to establish a more stable income, to grow and to protect their assets and to make sure they are properly diversified.”

Avoid emotional reactions. Seeing your parents worried can be very upsetting, but make sure you leave your emotions at the door. “Regardless of your feelings, do not guilt them into doing things,” says de Baca. “This will not help the situation for you or for them. Try to respect their feelings and the situation and to offer impartial advice.”

Remember your parents, if they’re having problems, may be upset, defensive, and embarrassed. “Money is very emotional,” de Baca warns. “Working with an adviser can often help people get beyond the emotional aspect, so they can take a more realistic look at their financial situation. The adviser can also help provide context. Maybe things aren’t as bad as they seem. And if they are, the adviser may be able to provide strategies to help get things back on track.”

Develop your own backup plan. Your parents may have had the best of intentions of paying for your college or wedding, but if they’re having financial difficulties, you may have to put on your big girl pants and figure out how to fund your own future. “If your parents set aside money to help you with college tuition or living expenses and are now struggling, it can be difficult and even frightening. However, one of the best things you can do is to accept the situation and work on ‘Plan B’ together,” says de Baca. This can suck, but take a deep breath and adapt, even if adapting means you have to compromise your expectations. “Blaming and anger will not help the situation, and your parents may be feeling very sensitive about their inability to pay as they’d hoped. Ask your parents what kind of support they can comfortably and realistically provide, if any. Remember, plenty of people have paid for their own college education. If you have to regroup and support yourself, it is not the end of the world – it will just require a new plan. Do not try to pressure your parents to provide more, as it is important that you respect their need to maintain financial health.”

Make sure your financial apple didn’t fall too close to the tree. You probably picked up a few things from your parents, like your mom’s adoration of Lou Reed, but you need to make sure you didn’t also pick up some of the money behaviors that got them into trouble. “Take a look at the behaviors that are creating problems for your parents,” de Baca advises. “Are you taking steps to create good financial habits for yourself? Do you have a budget? Savings? Are you using debt cautiously? Take time to reflect on how can you learn from their situation and make sure that you are on the right track to reach your own financial goals and dreams.”

Have you had to help your parents during a rough time financially? Got any advice to offer? Tell us in the comments!

Photo: iStockphoto

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