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The importance of financial planning for the sandwich generation

Many South Africans are increasingly experiencing the effects of the sandwich generation where young working professionals, usually in their late twenties to early forties, have to financially support their own children and their parents with their monthly income. While the desire to support one’s loved ones is understandable and noble, it is imperative that the youth make sure that their own financial health and wellbeing is not being undermined and compromised by the sandwich generation effect.

This is according to Motshabi Nomvethe, Technical Marketing Specialist at PPS, who states that financial planning during all stages of one’s life is critical in order to build a solid financial foundation, but even more so at a young age. “Being responsible for family members can cause a lot of financial stress for young people as their monthly budget often leaves little room, or none at all, for savings and investment opportunities. This group of people often neglect their own financial wellbeing and prioritise their family’s needs.”

In addition, with life expectancy increasing each year, it is likely that parents will live much longer than expected, which comes with additional expenses like medical care, nursing, retirement home services and other general living expenses. “This means that for those who are impacted by the sandwich generation effect, saving for their retirement, their children’s education and other investments will be delayed even further. In turn, it will be hard to break the cycle as the current sandwich generation is more likely to also be dependent on their children when they enter retirement,” states Nomvethe.

This vicious cycle must end somewhere and we all have a role to play to find a solution, she says. “Proper financial education and planning, particularly from a young age, can help our next generation to plan better and manage their finances better. We urgently need to change the savings culture of South Africans and the earlier we can implement this change, the sooner we will be on our way to breaking this cycle.”

Nomvethe advises that a financial plan is a great way for someone to budget properly in order to live within their means and identify and cut out unnecessary expenses. “By creating a monthly budget and listing every expense, the family can quickly get a reality check to can see how much money is coming in and how it is being spent.”

It is important for anyone who has dependants or assets to have a life insurance policy in place to replace their income should they become disabled, critically ill or pass away. “People have to shop around for an appropriate insurance policy by a comparing benefits and premiums. If the individual’s parents have any assets or debt, it is also advisable to take out insurance for their parents too.” 

She notes that the cost of living increases every year, but monthly salaries often do not increase at the same rate. “This, coupled with the high unemployment rate among the youth in South Africa, means it is becoming increasing difficult for young adults to be self-sufficient, especially when they have to support relatives.” 

“Financial planning can play a key role in assisting individuals who have to support their older or younger relatives. A certified financial planner can help these young adults to manage their financial responsibilities by guiding them through smart money choices and investments,” concludes Nomvethe.