Need of Financial Planning for Our Parents

The need for financial planning is becoming more prevalent day by day. Financial Planning for our parents is also the need of the day. We recently had a 24 year old client who showed great foresight in doing his financial planning at such a young age – more so when his income was very less. He requested paying in installments.

While today the awareness of the need for financial planning is being pushed by the media, regulator and the leading dailies among others and the investors are warming up to the idea of goal based investing, retirement planning, risk protection and many more  personal finance concepts, our parents were not so lucky.

Financial Planning for Parents

I am sure that most of our readers have parents whose savings are really not adequate to support their retirement expenses.  Look around you and you will find enough elderly people who are struggling with daily living expenses and health-care costs. If you think for a moment, this is a bit surprising. India boasts of the best savings ratio in the world – we save nearly 50% of our earnings. If that’s the case and our parents saved and invested, why don’t they have enough money for their retirement today ?

Well, the problem really is that of the 50% that India saves and saved, less than 10% goes (and went) into equities. The concept of long term investing from equity is a well known secret by now. But our parents avoided the equity route and plowed their savings into fixed income instruments. This was their first mistake.

It is well known that equity is known to return the most from all asset classes all around the world but the very fact that they are very risky have kept many conservative investors, like our parents, away.

But putting money into fixed income instruments was not a bad thing at all. Some of the fixed income instruments in those days fetched handsome returns so this was the right thing to do then. But what then went wrong that today elderly people don’t seem to have enough money for their retirement expenses ?

Financial Planning for Parents and Inflation

Enter inflation. This monster has the ability to eat up your savings. What our dear old dads and moms did not envisage was that though their fixed income savings would grow, the expenses would also grow faster. In fact, faster than they anticipated. So here you have them sitting over a swell kitty but not so swell enough to fight against rising inflation.

Today, inflation is poised to impact the growth of our country and the RBI has come out with rate hikes as many as 10 times since March 2010. Inflation is on everyone’s mind these days and it’s a monster that cannot be tamed easily. It needs to be in your mind when you plan for your future. That’s what our parents missed. That was their second mistake.

What could our parents have done for them to understand the importance of financial planning in their days ? The answer is the same as it is today.

When you are in an ocean full of sharks and your sole dingy has a hole in it, don’t try to sew it yourself, get expertise help. Ask your wife to do it. Do it yourself strategies work best when you want to make a hole in the dingy, not when you want to sew it.

Financial Planning for our parents, as they did not have the ability to measure their risk profile; get instant information about investment classes which today is available so readily on the Internet; know about the best stocks and mutual funds on the so many TV channels  that exist today  or seek professional help from financial planners who were not in abundance in those years. Obviously their awareness for financial planning would have been low.

They needed financial planners more desperately than investors need them today.

The world is a much better place today – the current lot of investors are better equipped with information. They are knowledgeable and want to know about all investment products. They are making more money that their parents and they are taking more risks.

A greater percentage now realize the urgent ask for doing their financial planning and are taking to paid advisory services. In their old days, the current lot of investors will be in a much better position than what our parents are in today.

Wish they had realized the importance of a financial plan then.

We decided to do a installment of two payments for our 24 year old client.