Can you afford to look after your parents?

This is the view of Anil Jugmohan, an investment analyst at Nedgroup Investments, who says that most people underestimate the financial impact of having parents and/or adult children as dependents – especially on ones long term savings.

He says that amongst Baby Boomers and Generation X, many people have adopted a habit of borrowing to spend – a behaviour that is also highly prevalent in South Africa. "There is a significant divide between the lifestyle that many expect to have versus the kind of lifestyle that they can actually afford. As a result, many people have managed to falsely convince themselves of their ability to repay ever-increasing levels of debt in the future, leading to a debt spiral,” says Jugmohan.

Jugmohan provides the following tips:

• Plan objectively for the future, factoring in the possibility of needing to support family members for longer than you may expect.

• Live a lifestyle that is within your means. Your lifestyle will probably need to be adjusted should there be any unexpected changes with regards to your dependents. Be realistic about the standard of living that you expect for yourself and your family, now and in the future. Find the appropriate balance between consuming more now vs. consuming more in the future.

• Educate family members about the importance of saving and show them how to budget. This may be easier with young children, but in some cases it may be necessary to discuss budgeting and saving with your adult children and possibly even your parents too. If you suspect they are living beyond their means, encourage them to seek financial planning advice.

• Set a good example. Demonstrate the importance of budgeting and saving practically by using your own income and expenses. Monitoring and tracking actual expenses against a budgeted plan every month is critical to the learning process. Seeing where your money goes every month, in comparison to where it should be going will make it easier to make sensible financial decisions.

• Seek financial planning advice if you are already in the position of having to support family members and are not sure whether your finances will withstand the additional costs.

• It is better to select investment products that are straightforward, transparent, cost effective and most of all appropriate for your individual circumstances. As in the past, there continues to be a myriad of products available that are far more profitable for the product provider than they are for the clients who use them – if something sounds too good to be true don’t sign on the dotted line!