One size does not fit all generations
It is often said that parents provide for the care of their children and so this should be a reciprocal relationship when the child grows to adulthood. At the very least, an adult should fund the care of their elderly parent if the parent is unable to do so.
Sandwiched between children and ageing parents, many adults have huge financial burdens they struggle to bear.
The Sandwich Generation is the generation who care for their aging parents while supporting their own children. Added to this is the daunting task of taking care of their own retirement needs.
According to the Pew Research Center, one of every eight Americans aged 40 to 60 is raising a child and caring for a parent. In addition, between seven and ten million adults are caring for their aging parents from long distances. US Census Bureau statistics indicate that the number of older Americans aged 65 or older will double by the year 2030, to over 70 million.
The South African problem
In South Africa some of the older generation look at their children as their ‘retirement plan’, expecting the children to provide for their retirement as they provided for them in their formative years.
Peter Dempsey, Deputy Chief Executive Officer (CEO) of the Association of Savings and Investment South Africa(ASISA), pointed out that this is an intolerable situation which has the potential to shake the very foundation of the South African society.
“This is a big problem if we look at the way in which the retirement industry is restructuring itself. In the past, our retirement savings industry was based on Defined Benefits (DB). Therefore, if you worked for a company for a specific period of time, you were guaranteed some form of retirement savings. With the move towards Defined Contributions (DC), the risk is placed on the policyholder who also has all of these additional concerns to take care of,” said Dempsey.
How does the move from DB to DC compound the situation? Under the DB method of investing, the company took all of the risk and the policyholder could not touch his or her retirement savings until his or her retirement. Under the DC method of savings, when a person leaves a job, he or she has access to the retirement savings and is responsible for reinvesting it into another retirement vehicle. Often, cost pressures prove to be too much and this money gets withdrawn rather than reinvested.
No points for trying
If this money was taken and spent on ridiculous luxuries, then it is safe to say that the person was being irresponsible. But can we label a person who is caught in the Sandwich Generation as irresponsible? Your parents did their best to provide for you during your youth, and there is no way that you can turn your back on them. While you do need to look towards your own retirement, you try your best to provide for both your parents and your children. As we know, you do not get any points in life for trying your best; sacrifices need to be made.
Steven Nathan, Chief Executive of 10X Investments, pointed out that families are getting smaller and with increasing educational costs, there is always the opportunity to send children to private schools.
One major trend which has been evident in South Africa for the past two decades is the number of South African citizens looking for work in international markets. This is another coping mechanism which is being used to resolve the Sandwich Generation problem, as sending Dollars and Pounds home really does help the situation than helping out in Rands.
The role of the adviser
The role of the adviser in a household who is part of the Sandwich Generation is vital. “From personal experience, it is hard to look at the requests that loved ones make and refuse them,” said Dempsey. Often, adults think back to their younger days and how their parents provided for them and find it hard to say no to financial demands made on them by their parents.
This is where the true value of an adviser comes in. Dempsey pointed out that an adviser can come into a situation as an objective party and can point out the merits or the faults of a financial decision. “Advisers also need to encourage their clients to draw up budgets and to stick to these budgets as stringently as possible. While many advisers do offer this service to their clients, it is often looked past by clients and sometimes not appreciated,” said Dempsey.
Editor’s Thoughts:
It is evident that the role and value of an adviser cannot change. If we continue to disregard the value of financial advice, and turn to our kids as our retirement fund, we are perpetuating the Sandwich Generation cycle, which in turn will affect future generations. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
