Many South Africans are faced with the situation of having to financially support not only their own children but their parents or other family members too. While it is always done with good intentions, this group of people can make the mistake of neglecting their own financial well-being by prioritising their family’s needs. In these types of scenarios, it is critical not to underestimate the value of proper financial planning.
Being responsible for family members can cause a lot of financial stress, as a portion of the monthly budget has to incorporate these expenses in addition to budgeting for monthly costs, savings and investment opportunities.
Those who have to take care of their parents’ financial well-being often do not realise the expenses that come with this responsibility. With life expectancy increasing each year, it is likely that people’s parents will live much longer than expected. This means that they need to plan for additional costs such as medical care, nursing, retirement home services and other general living expenses. All of these additional costs mean that saving for their own retirement, their children’s education and other investments are often put on the back burner.
Another problem is that even though the cost of living increases every year, salaries often do not increase at the same rate. This, coupled with the high unemployment rate in South Africa, means it is becoming increasingly difficult for young adults to be self-sufficient, resulting in parents having to cover their adult children’s expenses until they find employment.
Failing to plan finances properly when taking care of other family members’ places individuals in a difficult situation because it can sometimes create a cycle of dependence, as they in turn will end up depending on their children because they did not save enough for their own retirement.
The only way to ensure that this pattern of financial dependency is not perpetuated is through proper financial education and planning, particularly from a young age. Everyone simply needs to plan and manage their finances better. The savings culture of South Africans needs to change and the sooner people realise this, the sooner this cycle of financial dependence can be addressed.
Creating a family financial plan is a great way to budget properly. The family can quickly get a reality check to see how much money is coming in and how much of it is being spent. Financial planners can also play a key role in assisting individuals who have to support their older or younger relatives to develop a tailor-made financial plan.
It is important for anyone who has dependants or assets to have adequate insurance policies in place to replace their income should they become disabled, critically ill or pass away. If the individual’s parents have any assets or debt, it is also advisable to take out life insurance for their parents too. While it is usually best to get insurance through a financial adviser, it is important to consider your options by comparing premiums and benefits and do not just go with the cheapest option. Something many people often do not consider is that life insurance can assist with creating wealth for the generation left behind.
Author: Tiffany Boesch CA(SA) is group financial director of PPS