You are learning to ride a bicycle. You lose your balance and fall down. Your father sees this, comes, dusts you up, gives you a pat and guides you to try again and not lose hope.
There comes a stage in life when the parents become children and we need to help them out like parents with things that may actually be routine to us. It could be physically helping them with their daily routine, taking them to doctor, taking them along for vacations, or even helping them with the new age financial products which can make their life better and smoother.
There are many parents who are still invested into traditional savings and investment avenues like insurance policies, FDs, or Post office schemes, little realising how they can erode the net value of their investments. In most of the cases, it is an ‘inheritance’ from their own parents which withstood the test of time in their era and has now eventually become a part of their DNA. Not being very financially savvy, they do not realise that a bank FD giving them 6% (with Senior Citizen additional rate) is also actually giving them -2.0% returns counting tax and inflation! So, they’re continuously losing the actual purchasing power of their money.
One plausible reason for continuing to invest in unproductive assets and financial products could be that they had burnt their fingers in the past while investing in some investment avenues involving some risk, which has created a ‘safety only’ phobia among them now.
Our parents are too proud to take financial help from us and hence, will suffer silently when their quality of life suffers if their pension – in whatever form it comes – is not able to meet their requirements.
Actually, herein comes our role as a responsible child now. We are tech friendly and can help them overcome those handicaps and biases. But please remember not to lose patience while guiding them learn the new things like using fintech apps, exploring new investment avenues and many more such things. Helping them could involve the below:
1) Adequate Health insurance: It is a must have if your parents do not have an employer-provided health cover, like the ECHS. Some parents consider health insurance premium as waste of money because they consider themselves to be in good health. However, fortunately, COVID 19 has changed the mind set of most of the people thinking earlier on the same lines. Inadequate health insurance could be an invitation to heavy expenditure at a later stage and any inability of doing so could be a risk of life too.
2) Adequate Life Insurance: In case your parents have responsibilities to look after and liabilities to service like Children’s education and marriages, post retirement expenses, loan obligations etc, life insurance is a must have.
3) Diversifying across various investment products as per one’s goals: Parents should not take the risk of investing all the moneys in one or two asset classes. It should be well diversified across multiple investment avenues so that all eggs are not kept in the same basket. Inflation is high and old traditional products are unable to compete with it, which eventually eats the value of their money. Taxation is an additional burden there. Bank FDs are also not secure beyond the limit of Rs 5 lacs. Taking a calculated risk with some part of the portfolio in market related products is the need of the hour. It can provide them inflation-beating and tax efficient returns.
4) Life Insurance is not an investment product: Almost all the Insurance policies sold by agents are investment-cum-insurance products which don’t serve the purpose of either of them. Neither will they earn good returns nor will they get any worthwhile life cover.
5) Keeping the nominees updated in all investments: It will help in easy transition of their hard-earned money in case of any mishappening you. Easy to make, it has far-reaching consequences.
6) Preparing a WILL: LIC is sitting on unclaimed funds to the tune of ₹ 21,539 crore. And same is true of other financial institutions too. A proper WILL help will again help in dispute free transfer of assets to their loved ones.
7) Professional advice: Just like one approaches a doctor for health related problems, a professional financial planner too acts as a financial doctor for personal finances. A good personal financial planner is what most of the aged people need.
8) Reverse Mortgage: Reverse mortgage is a custom-made arrangement designed to fulfil the funding needs of senior citizens. Home owners above 60 yrs of age can utilise the value of their residential property to avail funds via this loan facility. There are some easy terms and conditions to this, but for those who are likely to fall short of money in their later years, harnessing the value of their self-owned property is a good alternative.
Convince yourself that you can convince your parents and thus assist them in taking right financial decisions for a great retired life.
We hope the above article has been useful to start a thought process in your mind to help your parents live an enriching and money-tension-free life.
(Contributed by Sumit, Associate Financial Planner, Team Sukhoi, Hum Fauji Initiatives)