Financial Challenges of Spinsters and Single Parent
Today, in India we see a lot of new trends in lifestyle and relationships due to changing demographics, which stems from modern values or rather western influence. Similarly, financial planning for an individual needs to be tailor-made or customized according to his or her needs in tune with current times. Financial Challenges of spinsters and single parent can be difficult to tackle. Here are some tips which help in tackling these challenges.
In this context if we shall look at different individuals
- A young unmarried working professional,
- A recently married executive,
- A middle aged executive with a wife and two children,
- A retired professional, etc.
The financial needs of each of them are as distinct as chalk and cheese. We also have a notion that most people go through the same life stage like education, working years, marriage, children, middle age-stage and retirement.
In reality there are some exceptions such as people who are spinsters (older singles), widows and single parents, to name a few. Today as we see incidents of sudden calamities, divorces, disputes, etc this segment is growing in number as well as in % of the population as a whole. These are not exceptions, but more common given the changing environment around us.
The Unique Segment and their needs
These set of people are unique in terms of their personal lives, experiences as well as in terms of their value systems. People who fall under this category could be :-
- Older singles (old but not married or without partner)
- Single Parents (where one of the partners has passed away or divorced)
- Widow or Widower
- Divorcees (without kids)
- People with adopted childreren
- Singles with dependants
- Others (in case I’ve missed some)
The first 3 or 4 would be the typical example we will discuss here. We will look at the financial challenges faced by one or more of these, however these will be applicable to the specific group and a one-size fit all approach may not work.
Financial Challenges – Spinsters and Single Parent
Getting Prepared for Contingencies
People who are single or alone could face several challenges that individuals in families may not face. It is not about finances but also about various aspects of life.
For instance Ms.Anu (names are fictitious), who legally separated from her partner 2 years ago and decided to live with her 6 year old son and 58 year old mother in Hyderabad. Given her bad personal experience with marriage and the resultant trauma she decided to remain independent.
Key Challenges or Questions
Although she has sufficient income to support both her son and mother at present, there are several challenges that she has to face in the coming days or in near future.
- What if she were to die due to some unforeseen incident?
- Who will take care of her mother in her last days (in Anu’s absence)?
- Even if Anu were to be hale, healthy and alive, how will she meet the future higher education expenses of her son?
These are just a few financial challenges to start with. We will look at some of them and see how these can be addressed. We will discover and understand what can be done to solve or overcome these challenges.
Financial Challenges # 1
Life Insurance as a Back-up Plan
Those without dependents may not need life insurance, but this is highly critical for those with dependents.
For instance Mr.Rakesh is a single parent with a 10-year old daughter still at school. If something untoward were to happen to Rakesh and take away his life, what will happen to his daughter?
Who will support her? What about her education, career and future plans ? Everything coming to a standstill! The financial impact of this can be minimized if he has a life insurance cover.
A life insurance is not an investment or savings scheme, but rather a back-up plan when things go wrong. So people who are single with dependents must have a simple term life insurance plan. A rule of thumb is to have about 10 times your annual income as life insurance cover.
The right amount of insurance cover required needs to be estimated after discussion with a financial planner or after thorough research.
Financial Challenges # 2
Although you may have good income and assets to support your dependants a medical emergency can definitely throw life out of gear. There are two possible health risks to consider:-
- Where you face a medical emergency or hospitalization (or)
- Where your dependent faces a medical emergency
In either case if both of you are covered by health insurance you will be able to get some relief from the health insurance cover. If you have a health policy provided by employer see if you can include your dependant (child, parent, relative, etc) as part of the cover. If your company cannot provide the health cover, then don’t hesitate to buy it yourself, because its definitely worthwhile.
Experts also recommend that you have your individual health insurance in place, in addition to the cover provided by employer because of two reasons:-
- The plan provided by employer may not be useful after you leave the job. Or in some cases new company (where you join) may not have health cover.
- When you are between jobs your own personal insurance cover will protect you .
- If you have an additional health insurance which is duplicating in nature but still works well because
- You can build a health history with the insurer
- You can get a cost effective cover if you have a relationship or history with a health insurer and may get concessions or rebates too. (This may or may not work depending on case-to-case situations).
Financial Challenges # 3
Nomination & Will
It is important to nominate the person who will receive access to your accounts after your death. This should be done in consultation with your dependants so that they will know what to do and how to do it when the contingency occurs. An example is below.
Mr. Santosh, a single parent had managed to bring up his daughter and supported her up to her higher studies in medicine. He had good amount of investments, savings, property, etc. Since he was in a very good position in a large engineering company he had a good standing and respect in his family or relative circles and in society.
One fine day he met with a heart attack and expired. His daughter Ankita was shocked and upset for several days.
She was finally consoled and adopted by her uncle Mr. Pradeep (Santosh’s brother), who apparently was eying the large property of Santhosh in a prime residential location. Ankita had quarrels with her uncle and later decided to live separately. Luckily she got access to Santosh’s investments, savings, etc. and is able to live normally despite these problems. Now the property is under dispute and the case is in process.
This is not a story from a 70’s movie, but a serious issue that most single parents/kids face practically. Here, the good thing Santosh had done was to nominate Ankita in all his bank accounts and investments. Mr. Pradeep or other relatives did not bother about this.
But note that nomination is just a temporary arrangement of passing assets to a trustee, who is only a custodian and not necessarily the owner. For more on this you need to take legal advice from an advocate or lawyer and have a will drafted in consultations with your dependants.
Financial Challenges # 4
Having a trustworthy legal guardian or caretaker
Trust is becoming quite rare in this age given that people have forgotten the age old values of honesty, reliability, trustworthiness, etc. There are cases like the story of Mr. Santosh (above) where a legal guardian or caretaker could have been identified.
For instance you could write a will to pass on the assets to your son or daughter, and also provide the access to the funds to a Trustee or Guardian, who will ensure that these are used appropriately. In some cases a legal professional may be appointed where you don’t have trustworthy people to do the needful.
The responsible trustee could be any reliable person who you trust. It could be a relative, friend, adviser, etc. Identifying someone for this critical role during your lifetime will be a good idea. You can also take legal advice and have a pro-active arrangement in place instead of leaving it to fate or destiny.
In some cases where you need special attention due to disability, health issues, etc of your dependants then its important to ensure that the caretaker and his/her back up is also in place. For example a parent with polio-affected child needs to also plan for a caretaker to ensure that the child is taken care of tomorrow. This also applies to children with hearing, speech or other disabilities.
Financial Challenges # 5
Emergency Fund Creation
It’s a good idea to have some emergency funds or accounts in the name of your child. This along with the trustee in Challenge 4 will be a systematic way to have an emergency plan in place. Emergency funds could be cash, some funds in your dependant’s account, some investments in your dependant’s name, or adding his or her name to your accounts or having him or her as nominee.
Financial Challenges # 6
This shares some relation with Challenge 3 where a ‘will’ is emphasized. In cases where you have properties, assets or businesses, you may want to transfer some of them to your dependant (s).
For instance Mr. Ramesh had two properties– one where he lives with his son and another which fetches him rents. Since Ramesh had income from his consulting services and own businesses, he gifted the first property to his son.
Giving or passing your assets to dependants can be challenging especially when you are still not sure about your own financial situation like retirement, your income needs, etc. But since Ramesh’s financial situation was very good, he could afford to pass on the property without worries.
We have discussed only a few financial challenges of spinsters and single parent face. But there are umpteen other issues such as child care, upbringing, health, education, etc. Although you have a smaller family or household you still need to take more care because you don’t have reliable family member to take the responsibility forward when you aren’t there.
For those without dependants there may not be much in terms of issues, but when you leave this world you need to make sure that your assets and property move to the right person, right charity, etc. In some cases a property left by a spinster becomes a huge row of controversy among relatives.
If you (assuming you are single) want to pass on your estate to your nephew then ensure that you have a proper will in place so that your estate is dealt with as per your wishes. We bring nothing to this world and take nothing, however, we need to ensure that value addition we create – in terms of money, assets, property, etc goes to the right hands and are put to right use.