… or how to let emotion manage your money. This is a tale of my parents and their journey from comfortable to broke.
The Starting Point
Once upon a time there were two fully paid off bungalows; my parents lived in the smaller home, and my grandparents lived in the larger one. When my grandparents died, the larger bungalow was left to my mother. It was then rented out, giving my parents a little income. So they had two homes with an approx value of ₤︎350k + ₤︎250k, for a total of roughly ₤︎600k plus rental income, and no debt. Sweet.
The Family Drama
My parents had two kids; me and my sister. I never had kids, but my sister had two of them; a boy (my nephew) and a girl (my niece). Here’s how the whole thing started to go downhill:
- My sister threw my 17-yr-old niece out of the house
- My parents took her in, along with niece’s boyfriend
- Niece and boyfriend got pregnant and had a baby
- Drama ensues; my parents side with boyfriend, kick out niece and baby
- Niece finds an apartment for herself and the baby
- Boyfriend moves back to Wales, where he’s from
- Boyfriend takes baby for weekend visitation and refuses to return him
- Massive family drama, including court custody case
- My parents decide to sell their home and move to Wales to be part of boyfriend’s family
The decision to move was a purely emotional one and basically dictated by my father, who reacts emotionally when anyone challenges him. Niece’s now-ex-boyfriend had promised that they could see their grandchild any time they wanted and become a part of their family. My parents had some conflict with my sister at that time, so there was an element of “I won’t stay where I’m not wanted.” I told my dad very directly before they sold their home that moving to Wales was a bad idea, and that they were being taken advantage of by niece’s babydaddy. Dad did not speak to me for almost two years.
So my parents sold the smaller bungalow for ₤︎250k and purchased a house in Wales. While they were there, the ex-boyfriend’s family talked my parents into showing up in custody court to vouch for the ex-boyfriend, and into lending them over ₤︎20k in cash. My parents didn’t insist on any kind of contract or loan paperwork for the cash loan because faaaaamily. Once these people got what they wanted (custody of child, and money) they ghosted my parents and did not return any of the borrowed money. (Could not see that coming!)
Once it was clear they’d been taken advantage of, my parents were pissed and moved back to our local area. The house in Wales sold at a loss (of course it did) and with the proceeds they purchased a new-construction 3 story townhouse. This was another huge mistake, as they were in their mid 70s and both had mobility issues. When I expressed concern about this, they claimed that the stairs would help keep them fit. Meanwhile the larger bungalow had been vacated by the renters and my sister and her other child (nephew) had moved into it. So at this point my parents owned the ₤︎350k larger bungalow and the ₤︎200k townhouse for a total of ₤︎550k. They were still getting some rental income, but it was less than market rent because my sister doesn’t work, instead relying on government rental assistance.
After living in the town home for a year or two, my parents realized that it wasn’t sustainable. My mother was literally crawling up and down stairs with the laundry. Since they still owned the larger bungalow, where all rooms are on one floor, they asked my sister to move out so they could live there, and they sold the town home. My lazy, crafty, and manipulative sister did exactly what everyone expected her to do – she cajoled my parents into using the money from the townhouse they had just sold to buy her a house, because otherwise she would be “homeless”.
Yes, she was claiming homelessness if my parents ‘threw her out’, but she chooses not to work, so her inability to pay rent is entirely of her own making. But my parents fell for it, and used the money from the townhouse sale to buy a home for my sister; a total of ₤︎200k. This brought their assets down to ₤︎350k and no rental income.
Because the larger bungalow was left to my mother by her parents when they died, my father did not want to live there. I suspect there was some misplaced ‘I am the man, I am the breadwinner and you shall not provide the bread’ kind of thing going on. As fucked up as this sounds today, my dad is 85 and this rigid mentality about gender roles was common when the Silent Generation was growing up. To make him feel more at home, my mother generously added him to the house deed, and my parents embarked on a list of substantial renovations to the house. Because they had used all of their cash to purchase the house for my sister (and then signed it over to her), they had to take out a loan for the renovations.
The loan was in the form of a so-called “equity release lifetime mortgage” which is a little like a reverse mortgage product, but not quite as straightforward. This product is specifically marketed to elderly people and I believe it is predatory. While its terms are listed on the website and in the loan documentation, my Dad didn’t read any of that (he literally can’t) or consult their attorney before deciding to do it. Unfortunately, according to the terms, they are only permitted to repay the loan by selling the house when they both die or need to go into long term care. Part of the balance can be paid off early in some circumstances, but there are steep fees for doing so. So now there is a note on the bungalow for about ₤︎90k (including the interest) that will outlive both of them.
To make the situation even worse, when my father started going blind, my sister decided she was going to be his official caregiver. Given the aforementioned laziness, she actually did very little care giving, but that’s a whole other post. What she did do is put her hand out for a new car, because my parents can’t drive and she drives them to doctor’s appointments. OK, that’s fair, so they purchased a reasonable second hand car for her. However, six years and six more cars later, the latest being a fancy limited-edition Mini Cooper I think is taking the piss just a bit. After mathing up the house and all the cars plus other “helpful” expenses like new appliances and a purebred puppy, my parents have given my sister nearly ₤︎300K. So now they are down to ₤︎260K in assets, which is 100% tied up in a house they can’t sell until after they both die.
Long Term Care
While all of this was going on, my parents’ health was declining. My father is mostly deaf, legally blind, has multiple serious chronic health conditions, is in the early stages of dementia (maybe not that early, given his terrible financial decisions), and is unsteady on his feet. My mother also suffers from limited vision, cognitive issues, and an arthritic hip that causes her constant pain. They currently need daily help and eventually will need long term care. The problem is that they no longer have enough resources to pay for this care, because most of the money is gone. Yes, it was their money to spend (or give away), but all of those emotional decisions add up to the very real possibility that they won’t have enough left to pay for the care they need. They somehow never considered this, assuming (incorrectly) that their pensions and the NHS would take care of everything they need. They won’t, and it doesn’t.
Enter .. Stage Left
A few months ago, my father spent about a week in the hospital with some very high risk conditions. The situation was dire enough that my mother told me I should get on a plane right away if I wanted to say goodbye. However, I couldn’t get any actual medical information about what was going on with Dad. My mother doesn’t like to ask the doctors questions and can’t remember their answers, and my sister, the official caregiver, refused to tell me anything – even which hospital he was in. After a few weeks of unsuccessfully trying to get information, I just got on a plane so I could go figure everything out in person. So here I am now, living with my parents 24/7 so they have support. Later I discovered that my sister wanted to keep me at arm’s length (in another country) so that I would not come between her and what she called “the Bank of Mum & Dad”.
My Dad’s health has improved some since I arrived, which is great. However, he is officially in home hospice care status, and we don’t know how much longer he will be here. Mum is a little younger, in slightly better health, and could live another decade or two with good support. For the time being, I am providing the daily care my parents need (in addition to working full time), but I am looking for a private, paid caregiver so I can go back home to my wife and my life at some point. Unfortunately there is a desperate shortage of caregivers in this area, so this could take a while. Since my parents have limited disposable income I may need to pay for any help myself, but at least that would mean that my sister couldn’t talk my parents into firing them and paying her instead.
The Solution (I hope): Financial Restructuring
After a series of long conversations with my Mum, I realized how bad their financial situation was. I looked at all of the requirements and came up with an estimate of how much money they will likely need. They can currently do most of their own personal care like bathing and dressing, but they do need help with cooking and cleaning, home maintenance, transport, landscaping (even just mowing the grass) and random things like window cleaning. If my mother becomes confined to her wheelchair, which is a very real possibility, there will need to be modifications made to the house, such as ramps, wider doorways, and lower countertops. I think they need an absolute minimum of ₤︎120K, but double that would be better.
As a next step, I helped them set up an emergency fund plus an ISA. The emergency fund holds a few thousand pounds which should cover most minor emergencies. The bulk of their savings is in an ISA where it can earn considerably more interest than the 0.1% it was getting in the old savings account my mother had. I have also got them on a savings plan where they are putting almost 50% of their pensions into the ISA. This has already paid a dividend in that the money they save is not immediately available. My mother can easily access it if needed, but it would take a few days. This means it cannot be spent on a whim for Dad’s latest home improvement idea, or handed over to my sister for her latest “emergency”. My father, who is the most susceptible to my sister’s constant requests for money (and has already given her his debit card), doesn’t have access to either the emergency fund or the ISA. He has a little spending money, but in general, the Bank of Mum & Dad is now protected. I hope they can keep that savings momentum going, while at the same time learning to make logical and not emotional decisions.
My concern is that, at this point, they have only 10% of the capital they actually need. What they don’t have is time. Even at 7% interest, their capital will take years to build. I hope I have been successful with this plan, but I fear it’s too late for them. If they need skilled nursing care or major house repairs, it will wipe out everything they have saved. Once that money is gone, if even one of them needs long term care it will have to be provided by the NHS. While this is a great safety net, it only kicks in once their assets are down below ₤︎20K. This would require the sale of their home, which they would consider catastrophic. They are both adamant that they want to remain in their own home until they die, but they have made it very difficult for themselves to do.
If you’ve made it to the end of this very long post, congratulations! The moral of this story is twofold, and I cannot emphasize either of these points strongly enough:
1) Don’t let emotions govern your financial decisions, and
2) When budgeting, take responsibility for your own end-of-life care and don’t forget long term healthcare planning.