What Can You Do to Protect a Loved One Who Has Spending Problems?

Q. My son, Ronnie, has bipolar disorder, and he often doesn’t take his medication. When he is having a manic episode and his mood is elevated, he often partakes in impulsive and irrational spending.

At the same time, my mother has dementia, and it is getting worse. She sometimes doesn’t remember where she is spending her money. I want her to be able to continue to do things such as go to the grocery store and have her daily coffee, but I’m concerned about her using her debit card and forgetting where and for what. I’m also concerned that she is no longer able to budget or track her expenditures like she used to.

In both scenarios, it would be helpful to be able to keep track of what my loved ones are spending money on and to be able to limit the use of the cards to necessities only, for their safety and my peace of mind. Is there a way to do so? Also, what are some tips to help them with money management, in general. I think this would be very helpful in both situations. Thanks so much!

A. For those with mental illnesses, such as bipolar disorder, overspending and money management problems can be common. If your loved one is feeling low or depressed, they may lack motivation to manage their finances. On the flip side, spending may also give them a brief high, so they might overspend to feel better. They also may avoid doing things to stay on top of their money, such as opening bills or checking their bank account, or they might try to avoid thinking about money completely. All of these actions can have long-term consequences on a loved one’s finances.

Overspending can also be a problem for senior citizens, especially if they are experiencing a mental health issue, such as depression and/or cognitive decline. People with cognitive decline may have difficulty making sound judgments or decisions and may experience changes in mood or personality, which could involve irrational and impulsive spending.

Studies Show the Effects of Mental Illness and Cognitive Decline on Poor Money Management

According to a study conducted in 2017, people with mental illnesses reported that they spend money to feel good. Dr. Thomas Richardson, a principal clinical psychologist in Portsmouth, England, interviewed 44 people living with mental illness and led a focus discussion group with six. He reports some recurring themes: “I was spending money I didn’t have,” “I was buying things I didn’t need,” “I was buying things I couldn’t afford,” and “I was buying things I didn’t even want.”

In another study, published in JAMA Network Open, it was determined that cognitive decline can lead to overconfidence, memory problems, and deficits in decision-making—all of which can translate into risks surrounding money management. Survey data from this study found that about three out of four older adults with dementia or cognitive impairment still managed their own money, and a third reportedly said they had “risky assets.”

Experts recommend loved ones of those with cognitive decline or mental illness have a plan in place to help their loved ones manage their money. This is crucial to avoiding mistakes such as overspending, forgetting to pay bills, getting scammed, or making poor investments.

If You Have a Loved One Who Is Spending Too Much Money

When an older adult’s memory loss or a loved one’s mental illness makes it difficult to manage money, helping that person with money management should be imperative.

It’s a good idea to work with professionals, such as financial planners and daily money managers, who can help with investing appropriately, decision-making, money management, and planning. It’s also vital for your loved one to designate a representative under a financial power of attorney—an agent to make financial decisions for your loved one so that if a decline in mental status happens, safeguards can be put in place. Lastly, setting up alerts and notifications can be helpful for loved ones to be aware if there is unusual activity with an account.

What You Can Do to Help Your Loved One

As you can see, managing money can become more difficult when a loved one has dementia or suffers from mental illness. How can you help your loved one? Here are some suggestions:

  • Talk to them about money management in a calm, comfortable, and non-accusatory way.
  • Perhaps help them work out a budget for how much money they need each week and for what things.
  • Help your loved one set up direct debits for regular bills such as gas, electricity, and water. This way, your loved one won’t need to remember to pay the bill every month.
  • Suggest that they don’t save card details on shopping websites. This makes it way too easy to make impulsive purchases.
  • Suggest that they delete apps where they may typically overspend or apps which encourage them to spend.
  • Help them find distractions of other things that don’t involve going out and spending money to make them feel good.
  • Help them avoid possible scams. Suggest they avoid cold callers and never give bank details or other private information to anyone. Opt out of unwanted mail, calls, and emails.
  • Alert the bank that your loved one may have a mental health problem or is in the beginning stages of dementia. They may be able to add a note to the file to look out for unusual spending.
  • Some people find it helpful to avoid credit cards completely.

A Prepaid Card That Can Help

If your loved one’s spending habits are causing significant financial problems, and you want them to continue to be autonomous and have a card, you may want to consider setting clear boundaries. Many of our clients turn to the True Link Visa® Prepaid Card. It’s helpful because:

  • Loved ones can easily adjust settings on the dashboard to meet an individual’s specific needs–whether that’s to help prevent spending mistakes, scam attempts, and more.
  • The loved one with cognitive decline or mental illness can still make purchases on their own, but you can add restrictions. You can set up the card to only allow purchases at a local grocery store, pharmacy, your loved one’s favorite coffee shop, etc.
  • You can review reports regularly to check your loved one’s expenditures.
  • You can set up a once-daily email digest of all transactions made to stay in the loop on a loved one’s care–for example, to confirm a pharmacy pickup happened that day

Learn more about the True Link Visa Prepaid Card here. Please note again that we don’t endorse any products. The True Link Visa Prepaid Card is just something that we recommend to clients who can benefit from the unique setting of restrictions and monitoring capabilities that this card offers.

Planning for a Loved One with Mental Illness

A Special Needs Trust is often an essential tool to protect a mentally ill individual’s financial future. A Special Needs Trust is one type of vehicle that provides funds with which a mentally ill person can maintain his or her quality of life while still remaining eligible for needs-based programs that will cover basic health and living expenses. However, many people with mental illnesses such as bipolar disorder are never officially declared to be “disabled,” and that’s where other types of trusts, such as the Sole Discretion Trust, are often more appropriate for this type of special needs planning.

The Importance of a Financial Power of Attorney

Every adult should also have both financial and medical powers of attorney in place, especially if you are experiencing mental illness or cognitive decline. Powers of Attorney offer the peace of mind that someone you appoint can step in if and when needed to handle your legal and financial affairs and health care decisions.

The Importance of “Mental Health” Advance Medical Directive

A psychiatric or mental health advance medical directive is a legal tool that allows a person with mental illness to state their preferences for treatment in advance of a crisis. These special types of advanced medical directives, often written as an addendum to a traditional advance medical directive, can serve as a way to protect a person’s autonomy and ability to self-direct care while the person with mental illness is doing well and taking their needed medications. Most states that offer this option require a physician or psychologist to also sign this psychiatric addendum. For example, Virginia code section § 54.1-2986.2 states that: “1. The patient’s advance directive explicitly authorizes the patient’s agent to make the health care decision at issue, even over the patient’s later protest, and an attending licensed physician, a licensed clinical psychologist, a licensed physician assistant, a licensed advanced practice registered nurse, a licensed professional counselor, or a licensed clinical social worker who is familiar with the patient attested in writing at the time the advance directive was made that the patient was capable of making an informed decision and understood the consequences of the provision.”

Plan in Advance for Your Loved One with Dementia or Mental Illness

The Farr Law Firm is dedicated to easing the financial and emotional burden on those suffering from dementia or mental illness and their loved ones. We help protect your family’s assets while maintaining your loved one’s comfort, dignity, and quality of life by ensuring eligibility for critical government benefits such as Medicaid and Veterans Aid and Attendance. If you have a loved one who has been diagnosed with Alzheimer’s or another form of dementia, or a loved one with mental illness, please call us to make an appointment:

Northern Virginia Elder Law: 703-691-1888
Fredericksburg Elder Law: 540-479-1435
Rockville Elder Law: 301-519-8041
Annapolis Elder Law: 410-216-0703
DC Elder Law: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.