Credit Assess
Debt is on the rise among older people, and as a child of a retiree, you may find yourself helping your parents navigate the world of credit and debt. Here’s how you can do so tactfully, and with respect.
First, though, let’s look at the scope of the problem of debt among older Canadians and some of the reasons for this.
Why older people tend to have debt issues
The problem of debt among older Canadians is growing. According to the most recent available statistics from Statistics Canada, 42.5 per cent of seniors (those 65 years of age or older) still had debt in 2012, an increase of 55 percent from 1999.
There are several reasons older people tend to have debt issues.
Being on a fixed income can be quite an adjustment for retirees. Then there’s the challenge when unexpected expenses crop up.
“Without adequate emergency savings, retirees can run into a cash crunch and may be forced to rely on debt if, say, their home’s roof starts to leak or their car breaks down,” Wayne Rothe, certified financial planner (CFP), said in an emailed response to questions. Declining health may also lead to extra expenses.
Often, some seniors are too prideful to ask for help. They may be used to being the ones doling out advice and even bailing out their kids when they run into a rough patch.
“It can be tough when the roles are reversed for your parents to ask for financial help,” said Rothe. “They may feel like they’re giving up their independence by seeking out your help.”
On a related note, many older Canadians find themselves in debt because they’re helping their adult children financially.
The “Bank of Mom and Dad” is a common source of money; with the rising cost of real estate, parents often gift their children money to put toward a down payment on a home.
“Again, this comes down to pride,” Peter Albert, CPA, CA, said in an emailed response to questions. “Many parents are willing to help out their adult children, no matter what, even if it leaves them in a worse spot financially.”
Finally, older Canadians are in debt thanks to a changing consumer mindset. Your parents’ parents, who grew up during the Depression, were less likely to take on debt in retirement since they were aware of the consequences.
However, that doesn’t seem to be a mindset shared by today’s seniors. Interest rates have been low for so long that many seniors have forgotten the most important part of debt: you need to pay it back.
“A senior with a paid-off home could take out a home equity line of credit to help out their adult child with their down payment,” said Albert. “But if they’re making interest-only payments, they can be in for a rude awakening once interest rates finally rise.”
How you can tactfully assist your older relatives
It’s important to recognize the signs your aging parent is in financial difficulty. If credit card bills are going past due or utilities have been switched off, it’s a telltale sign something is wrong. But there may be less obvious signs, such as fatigue, if they are losing sleep over finances, or if they begin avoiding phone calls.
Step in sooner rather than later. Since many older relatives are too prideful to ask for help, you’ll want to strike a balance between lending a helping hand and allowing them to keep their independence; otherwise, they might not seek out your help the next time they run into trouble.
Here are some ways to tactfully assist them:
1. Help them research their benefits.
Help them find all the benefits they’re entitled to. It’s not unheard of for elderly parents to pay for medical expenses out of pocket when they’re entitled to coverage through the government or their employer.
“Take the time to review their coverage, so see if they’re paying for expenses out of pocket when they don’t need to be,” said Rothe.
You’ll also want to ensure they’re receiving government benefits. Government benefits such as the Canada Pension Plan may not start automatically.
“There may have to be a formal request in writing to begin receiving them,” said Rothe. “Helping your elderly parent complete the paperwork can go a long way to helping them stay out of debt.”
2. Help them create a budget.
As previously mentioned, it can be quite an adjustment to go from earning a salary to being on a fixed income. And unless your parents enjoy reading personal finance books in their spare time, they may not be well versed in basic financial skills, such as budgeting and debt management.
“By sitting down with your senior parent and helping them create a budget, it can help them budget for higher expenses in retirement, such as medical bills, utilities and entertainment, without relying on debt to finance them,” said Albert.
3. Guide them to a professional.
Finally, if the financial situation of your senior parent is worse than you anticipated, it may be time to seek out help from a professional, such as a credit counsellor. It might be time to do this if they’ve taken out a home equity line of credit or reverse mortgage they can’t afford to pay back, or if they just have an excessive amount of high-interest debt on credit cards or payday loans.
Just remember to do this with respect.
“By seeking out help from a non-profit credit counselling firm, it can help turn around the financial situation of your adult parent,” said Albert. “Credit counsellors may be able to renegotiate the loans and come up with a repayment plan that works, while avoiding filing for a consumer proposal or bankruptcy, in extreme situations.”
