In a perfect world our parents look after us, help us to get a good education and then live out their lives in comfortable retirement while we in turn look after our children and their wellbeing.
In reality, the vast majority of people cannot retire with a great deal of comfort, and remain dependant on their relatives for the remainder of their lives.
The sandwich generation
This situation has given rise to the sandwich generation who are people in their 30s and 40s who have to care financially for their parents as well as bearing the cost of raising their own children. This places such a drain on their resources that they too might not be financially independent when they retire; and so the cycle perpetuates.
In South Africa, economists regularly bemoan our poor savings culture. Combine this with high unemployment, and it becomes clear why a single breadwinner often has people to look after beyond their spouse and children.
Unfortunately, poorer families are more vulnerable to this phenomenon. The Old Mutual Sandwich Generation Indicator, measuring the amount of households that care for both parents and children, has increased from 20% to 29% from 2011 to 2016. Among poorer households, it is as high as 34%.
The survey also found that the percentage of parents who believe that their children should look after them when they are old is up to 45%, from only 26% in 2010.
It’s a simple recipe
Investment advisers tell their clients that the key to becoming wealthy is surprisingly simple. Just spend less than you earn, and invest the balance.
However, if every cent that clients manage to save goes towards maintaining family members, they too will end up depending on others in their old age.
Upsize the opportunity
Employers have a massive opportunity and social responsibility to change this cycle. By offering employee benefits, money is committed to saving even before family members can lay claim to it. By doing so, the investment is subtracted before a salary is deposited into an employee’s account. This saves them from the moral conundrum of wanting to save, but also wanting or feeling pressured to look after their families.
Workers who do not enjoy employee benefits should also look at investing in a retirement package. It does not have to be a large amount at first – getting started early is much more important.
These payments can then be increased as one’s career progresses and hopefully the burden of dependants becomes less. By committing to a debit order every month, clients ensure that the money is saved every month before it can be spent on other things.
A side of independence
To ensure that clients are independent when they retire, it is vital to draw up a road map of what they want to achieve with their money, and how much they need to save for this goal.
Once they start investing into a retirement fund, they usually have access to you, the financial adviser. The two of you can sit together at regular intervals and discuss whether they are on track to become self-sufficient in retirement.
By acting in this manner, the cycle of dependence can be broken within one generation, which is a great achievement. Not only are they independent, but they give their children the gift of being able to invest the money that they save, and build their own wealth.
In so doing, clients save their children, and their children. Financial education here is the key. Studies in the USA found that super rich families destroy 90% of their wealth within three generations as future generations grow up spoilt and without an understanding of the value of money.
Financial education will enable individuals to manage their finances responsibly.