Independent but confused - it's a situation that's becoming more common, says the Banking Ombudsman. Photo / 123RF
COMMENT:
Q: I'm hoping you may be able to steer me in the right direction. My ailing grandfather, who is 88, is showing early signs of dementia and diminished decision-making ability, but is refusing to allow family members to help manage his finances.
Reading between the lines of a letter he showed me, he still has a floating mortgage of about $140,000, which appears to still have 23 years to run, at which stage he would be 111 years old! I'm staggered that his bank would be allowed, under the responsible lending rules, to provide such financing.
He also has a $1000 overdraft with that bank and a $7500 overdraft with another bank, both of which are almost maxxed out. We also know he has $3500 owing to one of the department stores on its loyalty card.
Is there anything we can do to protect him from further financial risk? The interest rates on the overdrafts and the card are huge. His doctor is more concerned about physical safety, health and well-being, but we can't be too far away from debt collectors coming knocking unnecessarily and taking things he regards as precious or meaningful. Any help appreciated.
A: Gosh, difficult stuff.
Even though your family hasn't complained to your granddad's bank, I decided to forward your letter to the Banking Ombudsman Scheme. Normally, the BOS looks into situations only after a complaint has failed to resolve an issue. But the people there are used to dealing with situations like yours, so I thought they might offer some suggestions. And they did.
This sort of situation is becoming increasingly common, says Banking Ombudsman Nicola Sladden, "as our society ages and people are either reluctant to give up their independence or are concerned about financial abuse of the elderly.
"If the grandfather is not prepared to talk to his family members or friends about his situation, another option would be to see if he could be persuaded to talk to his bank, an accountant or a financial mentor about his finances and get an overall review as soon as possible. From there, they can help him get the right support.
"If the grandfather has an enduring power of attorney in place, a trusted friend or family member could suggest a needs and capacity assessment by a medical professional. This can be done in the context of ensuring that he is getting the right support with his personal cares, as well as his finances." Sladden adds, though, that if neither of these works, there are limits to what the family can do.
"The grandfather's ability to do his own banking can't be removed because family members are concerned. A bank can only accept instructions from the customer or a duly authorised representative. A bank will also not discuss a customer's banking with a family member without the customer's consent." All of this is understandable. Otherwise the door would be opened to all sorts of abuse.
However, Sladden says your family could ask the bank to note your concerns about early dementia on your grandfather's file, so that the bank is aware. That makes sense.
If you feel you need to take things further, there is another avenue. "A family member or someone else can apply to the Family Court for an order to deal with the grandfather's personal affairs or property and to protect his interests," says Sladden.
"The Court will choose someone to act on the grandfather's behalf. This may or may not be someone he'd have chosen himself if he was able."
I agree with your comments on responsible lending. That mortgage is a worry. Says Sladden, "The grandfather (or someone authorised to act on his behalf) is entitled to ask for a review of any lending decisions.
"In considering a lending application, a bank should take into account, among other things, the customer's income and whether it is secure, and what other debt the customer has.
"In order to conclude that a bank lent to a customer who lacked the means to meet loan repayments, we must be satisfied the bank knew, or should have known, the customer could not afford the loan repayments when he or she requested or drew down the loan. This applies to any type of lending, whether secured or unsecured, including mortgages, personal loans, business lending, credit cards and overdrafts." Sladden says there's more information on the Banking Ombudsman Scheme website, and adds, "the family is welcome to call the Banking Ombudsman's team to discuss". All the best with this. Here's hoping some of Sladden's ideas work.
A thought for others: this shows the importance of everyone having an enduring power of attorney in place, preferably not too late in life. While our correspondent's granddad clearly wants to maintain his independence for as long as possible, it seems clear that he would be better off having others help him with decisions. The debt collector worry is scary.
Q: How is it possible for insurance companies to offer a product where I could possibly be financially better off?
Isn't the premise of their business that I am at a statistical disadvantage, otherwise they'd go out of business?
Currently, I do not have insurance and prefer to set aside larger amounts of savings. I suppose this is a bit easier for me given that I am renting and don't have that same degree of emotional attachment to my house that a homeowner might.
A: You could argue that most people are ripped off by insurance, because they pay more money than they ever get back. Their premiums have to cover not just claims made by others, but also the insurance company's expenses and profit.
A counter argument is that, even if you never claim, you get peace of mind. You know that if your possessions are stolen — or your car is written off, or you get a serious illness, or whatever — you will receive financial help.
While that knowledge doesn't make you financially better off, most people would say it improves their quality of life.
And, of course, the people who do make major insurance claims sometimes get back far more than they put in.
You've chosen to "self-insure" instead of buying insurance. That might work well, but only if bad stuff doesn't happen early in the piece, when you haven't yet saved much.
Even at a later stage, you might not have enough to cover a big disaster. What if the place you're living in burns down and you lose your possessions? Or you become disabled and can't work for the rest of your life and would rather not live on a benefit only?
The best approach, I think, is to self-insure for just the little stuff.
That means choosing high excesses on all your insurance. You pay, say, several hundred dollars when you crash your car, or you pay for GP visits but not surgery, or you cover your own costs for the first three months if you lose the ability to earn a living. That reduces your premiums considerably.
But I recommend insurance cover for the big stuff. It's tough enough when bad things happen, without adding major financial stress.
Q: No, no, no. In response to your last column, only fools and horses would buy or build right now with a recession closing in fast.
Sections will be way cheaper and building costs will drop. This is the time to stow away the cash, clear the debts and learn DIY skills. The Trump slump will rival the worst downturns in living memory, and that includes the 1929 era.
A: You might be right, and you might be wrong. Even the experts get economic forecasting wrong often.
More than one person has written to say they were talked out of buying a house a few years back because they were told that property prices were about to fall — only to see prices keep rising at a rapid pace.
Experience — including my own — has shown me it's best to buy and sell property when it suits you, and not try to time markets.
Most people end up owning several homes in their lives. Sometimes a move turns out to be good timing, sometimes bad. That's okay.
Q: Thanks for the response to my letter in your last column. (The first Q&A last week, about whether our correspondent's family should add to their home or build a house in front and rent out the old one. He also said he would like his wife to take more interest in their finances.) I was really stoked to see it. It makes the column a bit more personal now.
Although I have dedicated a lot of time to thinking about expanding the existing house, I hadn't really thought about building up. We are in MHU (mixed housing urban) zoning, and it is feasible. It might be difficult because the house is on piles, but it is certainly another option that preserves our ability to redevelop. I shall ponder some more.
The column sparked a conversation with my wife, as she was initially quite defensive, reiterating that she was happy for me to handle financial things. When I mentioned what would happen if I was gone, she said I should write down everything she needs to know. If only it were that simple.
The good thing is that we did start discussing our housing options together a bit more, which is great and what I hoped would happen.
She has latched onto your idea of buying a new house that better meets our needs, which I initially thought would be tough, as our needs are so varied given our circumstances. However, she rightly pointed out that we have time to look — we aren't in an immediate rush.
And I think the main thing I now understand is that we should just stick to saving to give us options, and the right answer for what to do will probably reveal itself.
Hopefully you stick around with the column and I can update you in a few years.
PS. Thanks for being a champion for KiwiSaver. Your advice allowed us to buy our first house far quicker than we would have otherwise.
A: And thanks for your encouraging feedback.
I asked your permission to publish this letter because it's a great example of what this year's Money Week is about — encouraging people to talk about money. See the box below.
I agree that your best short-term plan is to continue to save hard to keep your options open. And hopefully, with your wife more involved in the conversation, you'll make a next move that works well for both of you.
Money Week 2019 starts this coming Monday and runs until Sunday, September 15. The theme this year is "Now We're Talking".
"We'll be highlighting how talking about money is a touchy subject among New Zealanders, why it's an important first step in getting ourselves sorted financially, and how sorted.org.nz can help," says the Commission for Financial Capability.
"For example, we've designed an online Discussion Starter with open questions to help get the conversation going."
The website moneyweek.org.nz also has tips about talking to your partner about money, easy ways to talk about money with children, information on the Sorted in Schools programme and more. It's worth a look.
- Mary Holm is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.
OPINION: You need to consider interest, taxes and fees.