How to Talk to Your Parents About Money

Financial contributor Mellody Hobson helps bridge the generation money gap.

July 14, 2009 — -- Discussing finances with your aging parents can be difficult. But delaying conversations about estate planning and retirement costs could end up costing your family.

"GMA" financial contributor Mellody Hobson offers tips on beginning this all-important conversation. Check out her advice below.

Start by Talking About Your Own Plans

When you first approach your parents, make sure you do it in a warm, loving way where you talk about your own thoughts about the future.

Do not be direct or confrontational, but show that you are concerned. If you find an opportunity to open a dialogue with them, then take it.

For example, if you recently opened a retirement account, then use that opportunity to talk to your parents about their retirement savings. Offer to help them in any way possible.

The most important step in this whole process is opening up this communication line. Do not get frustrated if it takes you several rounds of communications to get your parents' trust on their financial issues

It is important to have this conversation as soon possible. You do not want an emergency to dictate your plans.

Get Financial and Legal Documents Organized

Now that your parents have accepted your help, it's time to get organized. Find out where they keep all of their financial and legal documents.

These documents include wills, durable power of attorney, medical power attorney, insurance policies, bank accounts, and so on. The AARP's Web site has excellent forms that can help you organize your parents' documents, and they have other resources that may come in handy in the process.

Suggest Direct Deposit, Automatic Payments

You can also help your parents get organized by simplifying their lives. For any steady income they receive, like dividend checks, pension benefits, and social security checks, try to convince them to set up direct deposit, so the money gets to the bank.

If you notice that too many bills are coming in for them to handle, then try to get them to sign up for automatic payment through their bank for simple things like their utility bills.

Most Important Document Your Parents Need

The most important items that you should make sure your parents have is a will. More than 70 percent of adult Americans do not have any form of estate planning filed. This will definitely be a difficult conversation, but it is important to make key financial and medical decisions.

If you can afford it, you and your parents should go to an estate planner and have these documents drafted and updated regularly for major life events, like the death of a spouse.

I suggest that people create wills as early as possible. It will save a lot of trouble for your family after your loved one passes away. If your needs are very simple and you cannot afford an estate planner or attorney, there are numerous Web sites out there such as or that provide basic forms and instructions for you to create a will at a very low price compared with attorneys.

Additionally, your parents should have separate power of attorneys (POA) for your financial transactions and medical care.

A durable power of attorney is different from a power of attorney because unlike a regular POA, it stays in effect even after your parents lose mental capacity.

You can work with your estate planner on this or you can get forms from the same site you get your wills.

Senior Services

Issues arising from day-to-day care are very important for older people. In a recent survey, 90 percent of people older than 50 said they would prefer to remain at home as long as they can. This is an important financial decision for you and your parents to discuss.

If they can stay at home, but their mobility is limited, look into transportation and meal programs available in your community.

Another inexpensive option may be in-home non-medical care which averages about $18 an hour.

If they need more assistance, then you may have to consider assisted-living facilities or nursing homes. This can be an expensive option. A recent Genworth Financial Survey found that the average annual cost of a private room at a nursing home was $74,208 and a one-bedroom unit at an assisted living facility was $33,903.

Consider Long-Term Care Insurance

With more than two-thirds of people over 65 eventually needing some sort of long-term care, you and your parents should also consider getting long-term care insurance.

Medicare does not cover the cost of nursing homes, and one-third of all nursing home patients are not eligible for the government health care insurance program, so you will eventually dip into your parents' or your savings.

Reverse Mortgages Allow You to Borrow Against Home Equity

If your parents do want to stay in their home but do not feel they will have enough money for retirement, you may want to have them consider a reverse mortgage. Now these transactions are very complicated, so you will need to talk to an expert. You can locate one in your area at

Basically, the way a reverse mortgage works is that if you are older than 62, you can borrow against the equity in your house and convert to a cash flow while you live in the house. The loan, interest, and other possible fees must be paid back when the last living borrower dies or the house is sold.

Now again, these mortgages are not for everyone, and they can be expensive, especially if a death occurs or your parents move out soon after you get the mortgage, but it is something to consider if you are really in need of funds. The AARP Web site has excellent information about reverse mortgages that you should definitely review before considering a reverse mortgage.

Mellody Hobson, president of Ariel Investments in Chicago, is "Good Morning America's" personal finance expert. Click here to visit her Web site,

Amar Parikh contributed to this report.