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Individuals who are part of the Sandwich Generation encounter a challenge that, if handled poorly, could spell financial disaster, as they attempt to balance their personal finances and immediate needs with what their parents and children require financially. This scenario is faced by over half (54%) of adults now in their 40s, according to a recent Pew Research Center study. Here are some things you can do to help keep your finances on track, while meeting your family responsibilities.
The Sandwich Generation consists of millions of individuals, who are typically in their mid-30s through their mid-50s. The term was coined in 1981 by social worker Dorothy A. Miller to describe adults who are caught between caring for their own kids and their aging parents.
With advances in medicine leading to increased life expectancy, paired with millennials often having children later in life than previous generations, the Sandwich Generation of caregivers is swelling. This growing trend has led to greater financial insecurity, concerns for care, and more attention required for finances to make sure all parties get what they need.
It’s difficult for a parent to turn to their grown children for help, so it’s important you know the signs of when they may be in trouble. If your parents aren’t transparent about their finances, look for the following clues that may allude to trouble when you visit them or talk on the phone:
If you see any of these signs, try and open a dialogue to gain an understanding of your parents’ financial situation. Also remember that in order to assist your parents, it’s critical to first prioritize your own financial situation, then get a handle on your parents’ finances, and then follow the other tips detailed below.
As a key supporter for others, it’s important that you do your best to stay healthy physically, mentally, and financially. So, be sure that you don’t short-change your own financial goals — especially saving for your retirement. It’s also important to have a solid emergency fund of at least 3-6 months living expenses, if not more, since at this stage of life your obligations are greater and it’s not unusual for health concerns to arise that can affect your ability to work.
Talking about money with the folks can be awkward, but you’ll be in a much better position to help if you have a thorough understanding of your parents’ financial picture. This includes knowledge of their checking and savings accounts, and also things like insurance policies, pensions, and assets such as a home. If they own their home or have significant equity, selling it could go a long way toward paying for their care needs if they have little retirement savings of their own.
If you’re an only child, you may be stuck shouldering the entire load. But if you have siblings, be sure that each of you is helping your parents, if able. For example, if one sibling isn’t able to lend financial support, perhaps they can assist with caregiving or give other aid, like providing rides to doctors’ appointments to help with your parents’ medical care. Or, siblings who live too far away to participate in caregiving can be asked to contribute financial support.
With added financial costs, you might need to reprioritize. If you have children, options tend to be more open-ended, but no matter how you choose to help your children you should try your best to avoid borrowing from your retirement. This means that even if you’re relatively affluent, be sure to explore all options for major expenses, like college. Look into student aid, including grants, loans, and scholarships. Another option is having children pay at least part of their college costs, ensuring they have a financial stake in higher education, which may prompt them to give greater effort.
If you become financially responsible for your parents, you may be able to claim them, as well as your children, as dependents on your tax returns. If you are paying for their medical care, those costs may also be deductible since they are dependents. Also consider looking into the Dependent Care Credit, which is available to those who pay for childcare or elder care while working.
Wills and advance healthcare directives are critical for both you and your parents. If your parents don’t already have a will, this process can start with a simple conversation. Learn your parents’ concerns and wishes, and go from there. While these issues are always difficult to discuss, it will make things easier on everyone in the family if your parents also make clear in advance their wishes regarding final arrangements when they pass away. While you’re at it, set up a will and do some estate planning of your own so that your children will know what will happen if you pass unexpectedly.
Power of attorney is a legal document granting authority for an individual to act on behalf of another in comprehensive, or specific legal or financial matters. Your parents can have a power of attorney that puts you in charge to ensure you can make important decisions should your parents no longer be able to do so. If this is a course of action you and your parents wish to pursue, contact an attorney who specializes in these kinds of matters for help drafting a power of attorney that suits your family’s needs.
There’s no one way that perfectly addresses how to manage elderly parents' finances. Everyone’s needs and financial situation is different, especially if you also have children to care for. In addition to following the tips provided above, it’s important to just listen and start the conversation. By showing humility, compassion, and understanding, you are already on your way to better understanding and assisting your parents.
If you are interested in more information to help your personal or family finances, Digital Federal Credit Union, better known as DCU, offers a wide selection of articles and other resources to help with your financial concerns.
This article was informed by content from our partners at BALANCE, you can view their content here.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.