Single parents have too much on their plate. Apart from taking care of kids, they also shoulder the financial burden alone. A financial planner’s role is extremely important in reducing their burden.
A few factors advisors need to consider while advising single parents:
Low to medium risk
Being the sole provider, without an additional support system to fall back on, makes them cautious about investing. Advisors can help single parents by starting an emergency fund. This will act as a safety net in case of unforeseen events.
According to Suresh Sadagopan, of Ladder7 Financial Advisories, single parents are minimalistic and prefer to concentrate on the basics. “Their core focus is on saving for emergencies. Therefore, they do not usually insist on unnecessary goals such as a second home or exotic holiday. Instead they prefer saving for key financial goals like retirement and children’s education,” he said.
Child care and education
Unlike couples, single parents struggle to balance both the emotional and financial needs of their kids. Planning a child support system is as important as planning the child’s education. Jayanth Vidwans, of Vidwans Financial Advisors, believes that sensitising children on the importance of money handling is also a major concern of single parents.
“As financial advisors, we can help them on both fronts. We can create a provision for child support that will help the child in case of emergencies. To increase financial sensitivity, I ask the kids to maintain a book of expenses. I tell them the amount they save at the end of the month will be doubled by their parent. Over time, once they have built a sizeable amount, I ask their parent to start a savings account for them,” he said.
Retirement vs child education
Both retirement planning and a child’s education are crucial. However, when there is conflict about which goal to prioritise, single parents choose children’s education over retirement planning.
Suresh says that while the final call on which goal to prioritise rests with the client, he encourages his clients to give priority to retirement planning. “Though the final call rests with the client, in my opinion retirement needs must be a priority. Children can always get an education loan, whereas no bank will give a loan for retirement needs,” Suresh reasons.
It is important for single parents to plan for contingencies. They should take measures even for exigencies such as unforeseen death. Considering this, advisors must ask their clients to draw up a will, which specifies who would take care of the children and how the assets will pass down to them in the parent’s absence.
Long-term financial planning for single parents is challenging. Losing a job or falling ill can be more catastrophic as a single parent than if one is part of a two-income couple. Only a proper financial plan and support from the advisor can help mitigate the financial worries of single parents.