Financial literacy for seniors

My mother suffered from a rare form of dementia called primary progressive aphasia prior to her death. Before her diagnosis, she always seemed to have the right answers. Her neurologist once told us that the fluid intelligence used in problem solving peaks around age 20, and I remember being disappointed that even I am already 20 years past my prime. 

Even though it impacts people differently, cognitive impairment is a fact of life as we age. This is one of the reasons the Canadian Securities Administrators (CSA) wants advisors to take reasonable steps to obtain contact information for a trusted contact person (TCP) for clients. Unlike a Power of Attorney, who may take over financial decisions for someone who has been deemed to have lost capacity to make those decisions, a TCP is a precautionary role. 

“Due to the nature of their client relationships, [advisors] are in a position to be among the first to recognize signs of diminished mental capacity or financial exploitation of older or vulnerable clients,” according to Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. “The proposed amendments increase investor protection and provide certainty and clarity to firms on how to act in these situations, while preserving client autonomy.”

Financial literacy is an important life skill at all ages and stages. Even if you’re still early in your journey, consider that good or bad financial choices you make as a young person can compound as you age. So, yes, financial literacy is critical early on. However, there are many reasons that later-life financial literacy is important for seniors, their families and their advisors. 

TCPs are a good initiative from regulators for the financial industry. But what about the unwritten rules of elder financial literacy for others, like families? 

One thing that always worries me is the risk of having one spouse who makes most or all the financial decisions. It causes the uninvolved spouse to be vulnerable should they someday be tasked with taking over the family finances. It is one reason that seniors, their family and their advisors should try to involve both spouses in money discussions. 

After something has happened to a key financial decision-maker, some seniors get overwhelmed with the basics of trying to figure out how to do things as simple as paying the monthly bills. I have seen this firsthand and the thing that makes it even harder is that, whether the decision-making spouse becomes disabled or has died, their partner is thrust into the decision-making role at a time when they are also mourning a loss—figuratively or literally. 

Other unprepared spouses end up with an investment portfolio that is not in line with their risk tolerance or their understanding of investing. Both factors could put them at risk of selling stock at a low point in the markets, or having a knee-jerk reaction. 

Some people are reluctant to change anything financially after their spouse becomes incapacitated or dies, causing them to be financially frozen in time. I encourage people in a situation like this to respect the way their spouse did things previously, but to recognize the money is now theirs, and the decisions are theirs to make now. 

Financial planning for seniors has changed a lot over the past generation. It used to be that defined benefit pensions provided a larger portion of a retiree’s income. Today’s retirees rely more on their investments and financial products. 

Retirement used to be shorter as well. Retirement age has stayed relatively steady while life expectancy continues to rise. Seniors need to manage their financial resources for longer as a result.

Seniors also control an increasing share of Canadian wealth due in large part to real estate price appreciation. Seniors who downsize or move into a retirement home could have a significant amount of money to invest, without much investing experience to rely upon. 

There are some questions that senior spouses, children of seniors and financial advisors should be asking:

• Do you have any concerns about your finances, either now or in the future? 
• Are you comfortable with your investments and the advisors advising you? 
• Who should we contact if something happened to you? 
• What would you want people to do if you require long-term care someday?
• Have you prepared a summary of your finances, like bank accounts, investments, safety deposit boxes, loans to family members, advisors/contacts, etc.?
• Are your will and powers of attorney/personal directive/mandate up-to-date, and where are the original documents?
• Do you have any specific end-of-life wishes?
• Do you have any special requests related to your funeral, burial or personal effects?

I hope the government and regulators take more steps to protect seniors. It is easy to encourage essential conversations between spouses and families, and it could also help to enforce a fiduciary standard for those in a position of responsibility. Advisors need tools and techniques to work with aging clients because the approach is completely different to advising working-age clients in the accumulation phase. 

Nobody should take for granted that seniors have all the answers when it comes to their money. Many are incredibly financially savvy into their 70s and 80s, but some will need help. Even some highly financially literate seniors will leave behind spouses and children who may benefit from conversations and explicit instructions about financial and estate matters. 

There were decisions my siblings and I made on behalf of my mother as powers of attorney and while settling her estate that could have been easier in retrospect had we had certain conversations with her. Even though I’m a Certified Financial Planner, I could have done better. As awkward as some conversations may seem, it can be helpful for everyone when aging spouses, senior parents and proactive children talk to those around them about money. 

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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