My Parents Are Actually Not That Great with Money

When I grew up I knew two things to be fact – my dad was talented at earning money and my mom was equally talented at spending it. My mother constantly complained about us not having a lot of nice things – and we indeed were upper middle class and not a millimeter over the upper class line – but we had it rather great. As my father worked a professional job requiring his math brain, the money kept rolling in. And my mom (and I) would keep spending it.

But despite the “every time we come back from the mall” fights on spending it never was  a “real” issue. We weren’t in danger of losing the house. My private college tuition was paid for outright. So was my sister’s private school for a learning disability and then college. Apparently at some point my father’s company was sold and he did fairly well for himself in his stock and income appreciation. My parents should be comfortably set for life and then some.

However my father (who was told he had two years to live about nine years ago, mind you) and my mother have spent and spent and spent post “earning” years and with the stock market underperforming all his estimates about his finances didn’t quite pan out. Shocking for a man who made a career out of calculating risk. Yet, here we are today, with my father looking at all the numbers involved in the family finances and he can’t make heads or tails of it. There’s a massive home equity loan out that has to be paid back fairly soon, and there’s little left on it to borrow at this point anyway. He wanted to spend a lot on my wedding but, now that I better understand their financial situation – I realize it was not a good idea. It’s not that they are broke – they have social security and pension money coming in… about $100k a year. But in order to afford not only my wedding but also a winter condo they bought in the southeast and renovations to that condo and fixing a bunch of things breaking around their main house there is the reality that my dad had to pull out a bunch of money from the IRA bumping him up into a higher tax bracket so most of the income they’re making goes to taxes.

So they have to in the next few years pay back about $200k in home equity. How? The idea seems to be either from a reverse mortgage (which as I learn more about I really don’t like) or taking more money out of the IRA and paying a lot of taxes on it or, well, there aren’t many other options. The money is there, but it isn’t. They’re so much more fortunate than most people their age (due to smart saving at least and the possibility of a one-working-parent household being able to afford a nice life and a decent retirement) but their spending is just out of control. It’s not just my wedding – which theoretically my father had budgeted “forever” for – it’s the lack of acceptance of 1 – what life really costs and 2 – what their life really costs.

My father keeps talking about how they’re going to have to “get frugal” and I can’t help but laugh. They aren’t exactly going on luxury vacations but my parents do spend. My mother has no concept of money and I worry she’s going to eventually spend every last cent of her retirement money leaving her with “just” the monthly income – which at some point may not be enough to pay for her care. I’ll help, of course, as much as I can – but I’m stuck in the reality of my world which = I cannot ever afford a house, I cannot figure out how to save enough for my own/my family’s retirement, even on my current substantial income (which will not last because I’m about to completely crack in my current career and my next step is something less profitable but more personally fulfilling, I hope) – in any case, I’ll need to help out of guilt knowing how much my own life has cost them, but it’s still frustrating that this didn’t have to happen… they were doing so well and then they had to put an addition on the house and had to buy too-nice further for the vacation property and had to get a new dress for every wedding-related event coming up (I’m glad I talked my mother out of purchasing a $2000 dress for my wedding when the $300 dress she got looked WAY better than the one the fancy store was trying to sell her.)

I just worry too because I know that in so many years my father’s cancer will eventually end his life (I hope this is a long time out but who knows) and my mother will – god willing – life a very long time. But as bad with money and gullible as she is she’s suceptable to all sorts of scams and con arts and just about any potential way for her money to disappear. My dad likes to talk to me (so awkwardly) about how he wants my sister and I to get an inheritance – and I can’t comment on that because on and hand I think inheritances are just plain awful and unfair and should not be allowed and on the other hand the world we live in is one where people can or can not afford to, say, buy a house or send their kids to college due to such mini dynasties. It’s not a topic I’m comfortable talking about and I certainly don’t want to be the person held responsible for convincing my mom not to, you know, spend that money that one day would possibly end up trickling down to me and my sister – even though I honestly don’t want it if she needs to spend it, I just don’t want to see her getting conned. I worry I’ll have to be the responsible one because my sister knows nothing about money and clearly I’m the best educated on the topic (I don’t know how that happened but anyway, it happened.)

My father was even asking my advice on how to repay the home equity. I have no idea. $200 is a lot of money. It took me a very long time to save $200. Now I have almost double that. But it’s all locked up in retirement funds and such. It’s about half of the cost of their actual house. I don’t understand home ownership and the whole taking loans out against your property. It seems like he has a really great rate (2 percent?) so maybe that’s a smart/good thing. But it’s only smart insofar as the needed to spend the money. It’s my wedding but it’s more than that for sure. It’s just this nature of spending and spending and spending and being delusional slash not wanting to deal with the time to come when they really do need to be “frugal” in their own middle class sort of way… not something my mother has known how to do for years. I worry they’ll lose their home – though my father said that will never happen – but I’m starting to doubt his ability to predict these things. He seems rather surprised about how much taxes he owes in general and how things add up and money keeps disappearing. He seems perplexed that the stock market didn’t perform strongly so his networth shrunk more than expected and he didn’t have a backup plan to deal with this. And this all has led me to the conclusion that my father – the math guy – the financial industry risk expert – is actually really bad with personal finances. I worry for them, and I also hope somehow I can do better with my own family and wealth. I’m beginning to think that all starts with NOT owning property – EVER. Rent is expensive but at least it’s not handcuffs.

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3 comments

  1. Sus says:

    Hello! I am new to your blog and I too, am a woman who is very passionate about personal finance.
    Like you, I had parents who aren’t great with money. I am determined to learn from their mistakes and be better at finances than them. We all learn from a bad situation! I see it as a good thing.

  2. It sounds like your dad has a HELOC? Can he not get it renewed? If he can, I would guess the rate would go up, but it’d solve the cashflow issue temporarily. Otherwise, if he has secured income, he might be able to take out a personal loan. I definitely wouldn’t recommend pulling money out of retirement accounts, as the tax thing will be a compounding annoying issue.

    Other things he should look into is how much he’s paying for financial advising or in management fees, which can easily eat up returns. Given your parents are older, they should look at their asset allocation and assess whether it is in line with their timeframe for withdrawals.

    The bigger issue seems to be that your parents are spending more than their means. This seems to be the thing that needs to be nipped in the bud. Do your parents really need the second home + renovations? Could they settle for renting or a timeshare? It’d also be less of a hassle as they get older and are unable to handle scheduling maintenance themselves.

    You should also check out My Open Wallet’s blog, where she discusses her mother’s spending habits and how they’ve gotten to the point of endangering her retirement. It sounds like your father does most of the financial management for your parents? I’d recommend making sure your mother get primed on that stuff ASAP. It’ll be an unpleasant series of conversations, teaching her what she needs to know about finances, but it’s better than her running out of money later, leaving it up to you to support her.

    1. Joy ( User Karma: 0 ) says:

      I’ll look into the HELOC thing and whether they can renew it. From my understanding it ends in 2020 and it sounds like there is no renewal option, but will check. It’s at like 2% interest right now so super good interest rate but it will go up significantly no matter what.

      My parents are definitely spending more than their means – sort of. It’s so hard to know if they are. They have a house worth $400k+ and a condo worth $70k or so, plus $400k in retirement funds AND they’re making about $7k-$8k a month in income before taxes just on pension and social security, etc. I mean, they aren’t broke. But the bigger problem is that I know my dad is thinking the issue will be resolved when he passes away. The doctor’s told him that was going to be about 7 years ago now and he’s still kicking (which is a good thing of course but financially I think he just gave up on preparing – but now that he’s still alive he realizes that the solution to the financial issues is not him dying before he notices them.)

      My father does do the financial management for him and my mom. My mother spends like crazy and doesn’t understand money and thinks it grows on trees, but my dad isn’t innocent either – he is the one who wanted to have this big wedding and got upset whenever I talked about a “cheaper” option (any mention at the word cheap makes him very very upset.)

      I’ll look into My Open Wallet. I keep trying to teach my mom about finances but it’s pretty impossible. I set her up with a Mint account et al. But it’s also hard because they do have money and ongoing income (pensions are nice things.) I mean at some point worst case she may lose the house and have to move FT into her florida condo… and our inheritance would likely be wiped out entirely, but other than that I’m not sure she’s at risk for total retirement income wipeout. I’m not financially savvy enough to understand. And it’s hard to have the conversation without it sounding like it’s me wanting an inheritance. I mean, that would be great and all one day, but I don’t expect it or want it even… I just want her to be able to have a comfortable and long retirement. It’s so frustrating.

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