I have a similar situation with my mum and it's so embarrassing. My parents are actually pretty wealthy, but you'd never know. They weren't always, but they've received various inheritances and saved wisely, but live very frugally. My mum (now 82) has NO IDEA of the current value of money. She is completely out of touch with reality. They have no mortgage, spend very little on groceries, the house hasn't been updated in 40 years, have a small car, they no longer go on holiday, they have no expensive hobbies, and don't smoke or drink. They barely buy anything for themselves and always make do with what they have. They are not flashy in any way, which is of course fine and their perogative.
Neither are very invested in their appearance, but I have bought a lot of clothes for both over they years, and my dad always looks smart and presentable.
My mum, on the other hand, dresses terribly. She really makes no effort at all, yet seems deluded and still thinks she looks smart. She wears really old-fashioned clothes from the 70s and 80s if she's going out, and at home she wears threadbare leisurewear and sweaters that belonged to my dad and I 30 years ago. She's not a hoarder and their house is neat and tidy, but she can't seem to bring herself to throw old clothes out or invest in new ones. I feel so ashamed. They have so much money sitting in the bank and my dad would have no issue with her buying things, so it's definitely a her problem.
She was recently rushed to hospital by ambulance and I went to the hospital and I was so embarrassed. She had a ripped bra that was about 40 years old on, underwear with barely any elastic left and old faded clothes that should have been put in the bin years ago. It looked as though she was almost destitute. The hospital bag was a tatty old flight bag. I was horrified. She was in hospital for weeks, so I went to their house to help my dad pack clothes for her, and I found piles and piles of the nice clothes she has been given over the years (Joules, Crew Clotjing, M&S, etc), all with tags still on just sitting there. All are comfy and soft, and the right size- yet she refused to wear any and just wanted her really horrible old clothes. I bought her new underwear, but she's insisting on the old ones. I just cannot understand why she is like this. Her brother and sister are both smart and well-turned out, and she is scruffy and unkempt. If anyone tries to talk to her about it, she becomes extremely defensive and almost shuts down.
I assume there must be some psychological reasoning, but I find it all very sad. I am sorry you have a similar situation, OP. It's very difficult.