Color of Money Live: "There will always be demands on your money by people who don't pay your bills"

Sep 01, 2016

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary for an online discussion.

This month's book club guest is Naomi Karp, a senior policy analyst in the Consumer Financial Protection Bureau’s Office of Older Americans.

Send your money questions in early!

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Super excited about the conversation today. My guest is Naomi Karp, a senior policy analyst in the Consumer Financial Protection Bureau's Office Of Older Americans. 

So got questions about managing other people's money? 

Anyway, let's get started.

Oh and don't forget, love your Thursday Testimonies!

We have hosted two rehearsal dinners at our house. Many local restaurants have catering divisions that will deliver food within a certain radius; you can order party trays from Chinese delivery places; or you could even have pizza, as we did once. Dress it down or up with paper plates or china, plastic tablecloths or cloth, solo cups or stemware. The guests are your family and family-to-be; if you are comfortable they should be, too.

I love that you came back with some suggestions. Totally agree. I'm always in the camp of do what you can afford.

There will always be demands on your money by people who don't pay your bills. 

Buck the urge to please by doing what you please!

Just a comment from last week's discussion-- I bought a device that I got on Amazon that will block callers. If an unwanted call comes in, my phone rings once and a voice (on the phone to caller) will announce that we do not accept calls. Later, I can go to the device itself and "mark" the call as rejected and my phone will not ring from that number again. If the number is one that we will accept, we can mark it as accepted and it will ring until we pick it up. This device came from Amazon and cost about $60. It is worth it to avoid the telemarketers!

Hadn't heard about this but worth looking into. I am really getting tired of all kinds of calls even though I'm on the Do Not Call List.

Of course crooks aren't going to honor that.

Hi Michelle! My husband and I are very fortunate and each got 10,000/year raises(minus taxes, obviously). We had a good budget set up so we really don't want to incorporate this extra money into our spending. We've increase the amount to our retirement, savings, and automatic debt payments(student loans, one car loan). So that should take care of the bulk, if not all of the raises. However, do you have any strategies to avoid the "I now make more thinking." We've tried to adjust the amount that automatically goes to debt, retirement, and savings so we shouldn't "see" the extra money available for spending. But I can see it slowly creeping in--an extra manicure here, a trip to starbucks there, etc. How do we avoid that slowly creeping in?

Good for you for tackling that debt with the new money. Try this. On a white sheet of paper in bold print put how much you still owe for the student loans and the car.

Put it on the mirror in your private space. Looking at it constantly will be a reminder that you have other uses for this extra money. It's not a scare tactic but a motivation tactic. 

I have been helping my 84 year old MIL for the past 3 years (since she was widowed.) She has a couple of checking accounts for her rental properties, giving, and daily use but in the past few months has been spending more from the daily checking, writing checks out to different charities and political groups from giving, and generally acting as if she has an unlimited source of funding. I have online access to her bank accounts, basically to make sure someone doesn't hack into her accounts but also to keep tabs on her. She does not balance her accounts any more, but just waits for the statement to arrive and she writes it into her checking register. Most of her bills are automatic withdrawals and she uses 3 credit cards for daily spending. When is it time to have someone step in and take over her finances? Would you suggest a bookkeeper do this rather than a family member? I have helped her immensely with her finances, and help her prepare her papers for her tax preparer each year, but I do not feel she is able to handle things on her own. What should I say to MIL? To her children (my spouse is obviously one of the kids) without stepping on any toes? I also believe she needs to consolidate to fewer checking accounts and investments, but no one else seems to care about this. What advise can you give?

Hi - Naomi Karp here from the Consumer Financial Protection Bureau.  Thanks for your question.  This is a very common situation.  As people get into their later years, their ability to manage finances may start to decline but it may be a gradual process.  Often, people start to be challenged in managing finances but they are still on top of their other daily activities and tasks.  In those cases, it's a good time to start talking to the older person now, as well as other family members.  These are tough conversations to have.  Sometimes there is one family member or friend to whom the older person may be more receptive.  Even a third party like a personal physician may be helpful at times.  It may make sense for the older person to make a power of attorney or a trust while they still have the capacity to do so.  Usually it's a good idea to get an elder law attorney's advice on the best solution under the circumstances.  The CFPB has a consumer advisory called Planning for Diminished Capacity and Illness that may also be helpful.  

Both my landline and cell have call reject features. I've filled up my cell's call reject ... .

I now what you mean. So far I'm not getting scam calls or telemarketing calls on my cell. I'm trying to keep it that way but not giving it out much even to businesses I deal with. They all have this "you can add your cell phone" feature to their online stuff.

Nope. You can call me on my landline. 

We are expecting a baby in Jan and just went on a weekend away. I know my wife needed it, but part of me feels guilty for not saving this money. We have $13k saved and can survive on my salary alone, but I am still worried. My wife wants to do another weekend away for the fall colors. I feel bad spending $300-400 for a weekend away that we could have saved. Is it ok to do these weekend aways, when you think your savings should be higher

Speaking as the mother of THREE. Take your BABY away before the baby comes.

You have my permission to spend.

She and you will need it as a reserve for the many sleepless wonderful nights with your baby.

Seriously, you are savers. Sounds like you've been doing the right thing. This won't break the break. Enjoy time as two.

Congrats!

My parents are getting old and are beginning to have trouble managing their finances. Should I get them to give me power of attorney? What does that permit me to do? When people talk about a "durable" power of attorney what does that mean? Does a power of attorney still work after the person dies?

Thanks for this great question.  Many people find themselves in this situation.  A power of attorney may well be advisable in this situation.  A power of attorney is a legal document.  In it, someone (known as the principal) gives someone else (the agent) legal authority to make decisions about his or her money or property.  Often people make powers of attorney so that someone else can handle their money if they become sick or injured and can no longer manage their own finances.  In some states, this type of document is called a durable power of attorney.  Durable means that the document continues to be in effect even if the principal is cognitively impaired.  Powers of attorney are private arrangements, because they don’t involve appointment by a court or a public agency.  Powers of attorney are no longer in effect once the person dies.  At that point, a personal representative such as an executor or administrator takes over.  To read more about what a power of attorney permits you to do, we suggest you look at our Managing Someone Else’s Money guide for agents under a power of attorney. If your parents want to create powers of attorney, it’s a good idea for them to consult an attorney in their state who specializes in elder law or trusts and estates.

Hi: I always look forward to your live chat each Thursday, great reading. My question is what do you think of VSMGX, vanguard strategic moderate growth, fund for an IRA

Thank you. How kind. I really look forward to the chats as well. We've create a community and there are lots of regulars here! Love you guys.

So, I'm afraid on this question I can't help. It would not be prudent for me to comment on one investment. And I'm not familiar with this one anyway. 

My view of Vanguard overall is that the company was built on keeping fees low for investors. In the interest of full disclosure my company retirement plan has Vanguard products and I also invest separately. 

But that isn't an endorsement. Check the funds history -- although past performance does not indicate future performance. Check it against similar funds. Your risk tolerance. Your investment goals. 

Lots should go into this decision. So do some homework.  Sorry couldn't help more.

Blocking numbers is mostly pointless. These callers aren't calling from the numbers that are appearing in the caller ID. They are spoofing (faking) the origination phone number. Similar tactics have been used to make it look like the caller is from the IRS, or the White House, or the police, etc. The real solution requires the telecoms to implement more robust filtering and identification to weed out these scammers. Which they won't do until the FCC or Congress makes them.

You are so right. Although I am getting calls from the same number because I don't pick up. So guess I could block.

Nonetheless your point is well taken. 

You seem disciplined so this might work for you - figure out a *small* amount of money that you will both have as mad money - to spend separately and/or together on dinner/ towards holiday. Then put the rest of it towards debt. I think having a budget for pin money from the extra will help a lot psychological to stay on track.

Appreciate your tip.

But nope.

Want them to suffer. (In a thinking about you long-term kind of way)

Want them OUT of DEBT ASAP.

 

Hi Michelle, The last couple of months have really hit my family hard. My brother was diagnosed with late-stage cancer, my husband is being laid off, and changes at work have me afraid for my job (possibly for no reason other than life is scary right now). I keep reading that we're near full employment, but I don't see many job postings that match our skills. We're in our 40s. We're in the process of refinancing the mortgage...since we both have stellar credit and very little debt I expect it to go though, but you never know. I've also cut several expenses like cable TV, charity donations, wine club, so basic belt-tightening. We have $400 in credit card debt but $36,000 in student loans. I have about $10,000 in a savings account and about $18,000 in mutual funds. We are considering buying an inexpensive house in Baltimore and turning it into a rental property for extra income (we will receive a $15k windfall soon, which could go a long way there). But I'm positively terrified of running through our savings and want to know what we should do?

First. And I'm serious.

Breathe.

Right now. In fact, after you read this line. Take five second and breathe in and out.

1.2.3.4.5

Now, been where you are. In the span of two years lost my brother to lung cancer, a dear friend in horrible auto accident, my husband's father died of lung cancer while living with us and then my mother died from injuries in a house fire. 

So I get the fear the overwhelming fear. For a year or two (and still now) I couldn't plan our vacation or spend money because I thought somebody else was going to die. 

I didn't have the financial concerns but still understand the fear. So here's what I want you to do:

-- Make an apt. to see a grief counselor. I know your brother is still here but you need to prepare for what's coming and the aftermath. Counseling really helped me. And still does

-- Go online to debtadvice.org and make an apt with a nonprofit credit counselor. These folks usually deal with folks in debt but they can also give you a second opinion about your budget for a very low cost. You may be in better shape than you think especially with your savings.

-- It's good that you've cut ahead of the layoff. Hopefully it won't come for some months because in a refinance the bank will confirm the income a final time before closing. See if you can hurry it along before he loses his job. But please don't fib. Be truthful if asked about his job situation.

-- Pay off the credit card and put it away. You don't need that type of debt out there.

-- If you can and if you aren't already and you have federal student loans look in to the Income Based Repayment plan. That adjusts your payments according to the household income and family size. If you are using it your changed finances might reduce what you owe and give you more breathing room until he can get another job.

-- Do not. Do not. Do not buy a rental property. You don't have the funds right now. 

-- Take the $15,000 and put in the bank because you have no idea how long it might take for your husband to get a job. 

You can do this. It's okay to be scared but don't let your fear paralyze you. Good luck

Thanks for the guides! I recently had to help a family member with their finances after a tough diagnoses and the guides saved me from a lot of heartache. Are they available with state specific or local information? That would be helpful.

We’re glad to get your positive feedback on the guides!  They have been very popular and we have distributed almost a million copies nationwide.  You make a good point that state-specific information can be helpful in addition to all of the information in the national guides.  Because people’s powers and duties as a fiduciary vary from state to state, CFPB created guides for six states and a set of tips and templates so that stakeholders in the remaining states can adapt the CFPB’s guides with their own state-specific information.  Currently guides are available for Virginia, Florida and Oregon, and in the future we will publish guides for Illinois, Georgia and Arizona.  CFPB chose these states either because they have a very large population of older Americans or a high percentage of the population is older.  In addition, CFPB chose states from various regions of the US.  Finally, CFPB focused on states with diverse laws regarding fiduciary duties.  You can find the tips and templates on our website here.

First, thank you so much for your great advice over the years. Second, my wife and I recently got the wonderful news that we are having another child. The only thing is, I am not sure how we are going to afford it. This wasn't really planned and so we are still dealing with a not-quite-one-year-old and so have no real savings or life-happens fund that have been depleted by a bunch of unexpected expenses. Worse, I've crunched the numbers and we cannot afford day-care for two kids when my spouse gets off maternity leave. I know we need to consider leaving the (admittedly pricey) homecare provider we love for someone cheaper, but we hate the idea of sacrificing quality when our child spends 40+ hours a week there. And frankly even if we do that, I am not sure that we can make the numbers work. We do have several months to go, so we have the advantage of some time to come up with a plan, but I am at a loss. We don't have family in the area, so we have to pay for this service, and our mortgage means we both have to work. Do we need to reduce what we are paying into our 401ks; we are both putting in the max as it is right now the only thing we are doing for retirement? Are there any resources for daycare options in the DC area that won't cost the price of a second mortgage? Thanks.

I had a "love" child. My last one. So totally understand. I just recommended to a reader to go to debtadvice.org. I want you to do the same thing. Get someone else to help you go through your budget. When you go on the site you can find a credit counselor near you. Go in. Sit down and let them help you look at your budget. 

You may have to consider:

-- Moving. If your mortgage is taking up more than 40 percent of your take home pay you might need to move to something more affordable. Maybe you can't move but think about it. 

-- Moving to another child care provider. I get it. Having great care for your kid is vital. But do explore other options. There was a time that I hired an in-home child care provider and along with two neighbors shared the cost of her service at my home.  I used in-home care one year before finally moving to a center.

-- You may -- for a little while -- have to reduce your contributions to retirement. Yes retirement savings is very important but you only have so much money. And you'll only need the daycare for maybe four years. After that, once the kids are in school you can double down on catching up for retirement. 

As for your last question, any one have some resources? I'm so far removed from that now. My kids are 16,18 and 21. 

What do you think banks should do to equip their tellers and other front-line personnel to step in if they think an elderly person is the victim of elder financial abuse? Do privacy rules prevent the bank tellers from reporting this to some one who get do something about it?

Banks and credit unions can play an important role in preventing and responding to elder financial abuse.  Frontline staff such as tellers are well positioned to spot the red flags for financial abuse and report it to the appropriate local, state and federal agencies that can act to protect the older person or prosecute a perpetrator.  For the first time, a federal financial regulatory agency—the Consumer Financial Protection Bureau-- has published recommendations for financial institutions on combatting elder financial abuse.  We recommend that all staff be trained on the warning signs of abuse, action steps to take when they spot suspicious activity, and how to report it.  Federal regulators also have issued guidance to financial institutions clarifying that federal privacy law does not, in general, prevent reporting to an agency that can do something about it. 

The LTC insurance has given many of us a choice of raising it 126%, about a 75% raise or leave as is. The difference is in the compounding feature . Leave the premium as it is 2.2% compounding, 3.9% is about a 75% increase, and continue with a 5% compounding a 126% increase. Currently LTC would pay $282 a day and a good nursing home in my area of Florida is $303 a day. In 10 years if I go to 2.2%, the differential would be $90 a day. I am leaning to the 2.2%increase and no increase in premiums. Please comment with your words of wisdom.

I just want you to know I am going to address this. Just need some time to research some answers for those of you facing this issue. I haven't forgotten you. I promise. But until the column I will say this. Don't accept an increase that will be such a burden that you end up dropping the insurance that you may have to still carry for years to come. Instead focus on perhaps trying to save and invest what you can of the difference -- however much you can afford.  

Who do I call if I think my elderly mom is victim of a scam?

If you suspect a scam, get help. Contact a local, state, or federal agency, depending on the type of scam. You may also need to talk to a lawyer. Local agencies to call are adult protective services, the long-term care ombudsman program, the police or sheriff, and the local Better Business Bureau. State agencies to call are the office of the attorney general or another agency that deals with consumer protection. Call a federal agency if scammers are in other states or countries. Federal agencies are the Consumer Financial Protection Bureau, the FBI, the Federal Trade Commission, or the U.S. Postal Inspection Service. Each of these agencies and professionals has a different role so you may need to call more than one. The CFPB’s Managing Someone Else’s Money guides each have a Where to Go for Help section with contact information.  Also, the CFPB’s Money Smart for Older Adults resource guide may be helpful.

Several years before he died my brother had Dad update his will via an attorney--at the time his will had been one Dad had written. In addition the attorney got a medical directive done along with a power of attorney. The power of attorney was very useful when Dad had to move to another state to be with my brother. I had to show the POA for all sorts of stuff--closing electric, cable, water accounts, etc., paying bills, endorsing income checks, etc. I also used it to sell the house--with Dad's approval.

It can be a powerful tool. But I'll just say this. Be very, very careful who/whom you give that power to.

Recently my Mom has been putting keys, money, and mail away and then forgets where she is putting them. I am not the Durable Power of Attorney yet but have paperwork drawn up. Although I am joint on her bank accounts I worry that she will use the wrong bank cards for the wrong things and then I will have to explain or take the blame if she does not remember. I think it may be time to visit the doctor with her, what do you think?

Thanks for this question.  These are tough situations.  It’s challenging when a relative starts having memory loss and other signs of cognitive decline.  Since the ability to handle finances is often the first ability to decline as cognitive impairment sets in, it sounds like now may be the time to put those advance plans in place, whether it is a durable power of attorney or a trust.  It’s a good idea for the older person to execute those documents before they lose the ability to understand the arrangement they are making.  So a visit to the lawyer may be your first order of business.  If you will become her agent under power of attorney, take a look at our Managing Someone Else’s Money guide for agents.  It explains the agent’s duties, provides tips on protecting Mom from scams and financial exploitation, and provides resources on where to go for help.

Yes - but she was saying she found it difficult to be that disciplined and if she gets creeping spending that doesn't get her out of debt either. Not sure there's a one size fits all here. You have experience - do you find that people do pull back on the extra manicures she talks about that really add up? Have you seen instances where putting a certain amount of mad money aside makes that creeping situation worse?

When it comes to debt there is one size. Get out of it. Make sacrifices. Cut back. Suffer. There is a method to this madness. Because once you start to allow one thing, others creep in. I do find people pull back and stay back. That's why I created the 21 Day Financial Fast. You don't spend on anything that is not a necessity. 

The point is to shut down completely unnecessary spending. It does take discipline. And that's the point. 

If you suffer, you are less likely to get back into debt because you remember the suffering. 

My husband and I were planning to buy a house in the next few months. We recently learned that we will be receiving a large inheritance probably early next year but no one knows the timing for sure. If we bought the house before we received the money and made a large one time principle payment what would happen? Would it lower our monthly payments or would a 30 yr mortgage be paid off in 25 yrs? Would we be better off waiting to purchase until we can apply the inheritance directly towards the down payment? We're also getting a little bit nervous about all the talk of the Fed raising interest rates. We would appreciate any advice you have. Thanks!

I would wait. And even if the Fed raised the rate it probably won't be by much. AND you will be putting down a lot of money if not buying a home outright (Could you? I would if I could.)

But if you bought now, your payment wouldn't change. However, paying down the principal would get out of the debt sooner. 

With the caveat that I have two teens now and used only center-based care in downtown DC back in the day, I had heard of this organization who certified in-home daycares in NoVA. I recall looking at the webpage and the fees were always lower than the center-based we had, and I liked the idea of an extra "seal of approval." We got into our first-choice center so we never pursued any of these. Good luck. http://www.infanttoddler.com/child-care-resource-and-referral/

Thanks.

I read through that Consumer Advisory link you put in your response to my email. I feel that we have already talked about these things with MIL, and husband has power of attorney and is co-trustee, but MIL does NOT want to give up her investments. She does not have the "next plan." Could you give me some words to say to the family members and to MIL herself that communicate that we are at a phase where some financial stuff is getting too be too difficult and it is time to sell a rental investment or two....consolidate to only 2 bank accounts instead of 4, etc?

I get you. However unless MIL is incapacitated mentally, there may not be anything you can do. She's grown. Ran into the same issue with my FIL. Eventually, he had to let my husband take over. It took longer than we would have like but as I said he has a right to make mistakes with his money. 

For now you may just have to deal with the complicated finances. 

Hello, we have a five year old with no plans to have anymore children. We need to start saving for college; do the advantages of 529s outweigh the penalties incurred if we do not use that money for college. My husband is convinced she'll get a full ride to Stanford. ��

Sure she will. Keep hope alive.

OR be realistic. . 

Tell hubby this for me.  Less than 1 percent of kids get any scholarship money let alone a full free ride. And yes, that includes VERY smart kids. On average they get about $4,000 a year.  

Save. 

Save a lot.

Now.

If she gets a scholarship, you can keep the money for graduated school. 

Do bonded organizations exist that manage finances for older Americans?

There are non-profit organizations that provide daily money management services for individuals.  To find out whether any such organizations exist in your area, you could contact your local Area Agency on Aging (AAA).  You can find your local AAA on the Eldercare Locator.

For the immediate picture - perhaps a third party can figure out how much discretionary income is fine (goes over better than a family member) and have that go a separate account . Will she monitor that account online so she has budget for her discretionary spending on eating out. charities etc. This will have to include her *not* using her credit cards for this.

Another thought.

I'm so sorry. I see your questions. But have to go. I read everything. And do at times take leftover questions as part of my column. 

Thanks to CFPB. Read the column about the booklets. They will be very helpful if you find you have to manage someone's money. Take care and see you next week.

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Thursday and Sunday and is carried in more than 120 newspapers.

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Naomi Karp
Naomi Karp is a senior policy analyst in the Consumer Financial Protection Bureau’s Office of Older Americans. She focuses on elder financial exploitation and the impact of diminished decision-making capacity on financial security.
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