Sacrificing for children can jeopardize your retirement
planning
The Indian parent is more entertaining than a juggler. Watch the precision with
which he handles his limited, disposable income in fulfilling the various needs
and wants of his family. He puts away money for his son’s education, his
daughter’s wedding and the dream house he is planning for the family. Yet, he
tends to leave out a goal, inadvertently perhaps, but one that is the most
essential—retirement.
Given
the multiplicity of goals, how should a parent decide which one is more
important? “One should prioritise one’s goals based on two main factors—the
time on one’s hands and alternate sources of funding the goal,” say financial planners . List your goals and the time in which you need to
achieve them. Then, distribute the investible surplus among goals on the basis
of the urgency of each goal.
You
should choose to allocate a higher surplus towards your own retirement if you
haven’t managed to build a sizeable nest egg. However, if you have a
sufficiently large retirement corpus, you can allocate more towards other
goals. Experts say retirement planning is paramount because you can get a loan
for all other goals, but nobody lends for retirement. Yes, reverse mortgage is
gradually catching on, but only the people with a house can go for this option.
EMOTIONAL INVESTOR
The
Indian parent is also an emotional investor, torn between his responsibility to
provide for his children’s needs, and ensuring a golden retirement for himself.
This is why child Ulips, despite their high charges, were a big hit with
insurance buyers at one time. “Emotion is the last thing that should influence
your decision. This is why it is not always prudent to allocate all your
savings towards your children’s goals,” says Pai
Don’t
get us wrong. We understand that your children’s needs are paramount and you
want to give them a leg up in life, but don’t go overboard in doing so. Putting
away a large chunk of your investible surplus in a house for your child is not
a good idea if you have not built a sizeable nest egg. Besides, who knows
whether your child would want to live there 20-25 years from now. So, you are
diverting resources today towards things that your child might not want
tomorrow.
In
most cases, children may not even need the money you are saving for them.
As the HSBC survey shows, 86% of retirees plan to leave an inheritance for
their kids, but only 59% of the working people expect something from their
parents.
GIFT
FINANCIAL INDEPENDENCE
The
greatest gift you can give your child is financial independence. Delhi-based
Apra Jain, 23, learnt the importance of saving as a kid. “Today, I put money in
equities instead of the piggy bank,” she says. During her college days, she
would get a monthly allowance of `5,000, from which she began to invest in
stocks. “I started by putting in 10,000 and gradually increased it to 25,000 a
month, all from my savings. Today, I invest `10,000 every month in my
portfolio,” Jain adds.
This
financial independence does not come in a day, but is a process that parents
must indulge in from childhood. Start by teaching your child the value of
money. When you buy him a toy, make him pay the money so that he understands
that things come for a price. As your child grows, give him a piggy bank and
later you can also open a child-friendly bank account. This will inculcate the
habit of saving in him. In his teen years, give him pocket money and ask him to
use it for his expenses. This will teach him to spend within his means. These
small steps will lead him to the financial discipline that everyone desires,
but few actually have.
Source : Sakina Babwani – ET Wealth – 25/11/2013
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