The Financial Advisory Crisis Of The Sandwiched Generation 

How the ‘sandwich generation’ has to not only take care of parents and kids, but also save for retirement.

(Photographer: Adam Glamzman/Bloomberg)
(Photographer: Adam Glamzman/Bloomberg)

My friend Paro, is a single mother. She fought a bitter divorce battle and won the custody of her six-year-old daughter and was able to keep the house for which she had taken a large home loan. Her mother lives with her – she constitutes a support system all by herself and is a pillar of strength. It is because of her mother that Paro can continue her extremely demanding job and have some fun as well. In our group of friends, we look up to her as a role model in mental fortitude, positivity and energy.

For a pet initiative of mine around ‘women, psychology and money’, I have been interviewing some women friends to understand what they think about their money, how they handle it – their approach in general.

I asked Paro to fill up a set of questions for me and she gladly obliged. After the interview, she giggled in her characteristic manner and told me – “I am not the best sample data for you, I am not so bad with my finances. It is true that I cannot review every financial product that comes to me, so I use a financial advisor. I have investments and I have some idea about how much I need for retirement and how to get there.”

She is 40 now. Here is a list of her current liabilities and goals:

  • The home loan, taken for the longest imaginable tenure – she has to pay interest that sums up to more than even the principal.
  • Her lifestyle expenditures – just the maintenance costs of employing servants, society expenses, Zumba classes, Netflix subscription, visits to the salon etc. We assume this will go down, almost all of us assume it will, but that is unlikely.
  • Planned annual vacations, semi-annual if everything permits.
  • Retirement planning which includes unforeseen medical expenditures.
  • Her daughter’s education in a 'proper school' in Mumbai now, and later, her higher studies. The cost of her upbringing - the best any parent would aspire for.
  • Her elderly mother’s medical expenses which, at the moment, are already on the higher side. The mediclaim wasn’t enough.
So, by my conservative estimates, she needs about Rs 15-16 crore which ought to be built over the next 20 years.

Not let’s look at her assets:

  • About Rs 1 crore of investments (mostly illiquid)
  • The house, where they live (and is mortgaged for the next 16 years)
  • Her job
Coins surround a piggy bank in this arranged photograph. (Photographer: Ron Antonelli/Bloomberg)
Coins surround a piggy bank in this arranged photograph. (Photographer: Ron Antonelli/Bloomberg)

I had to break it to her.

Her advisor has made her do some systematic investment plans and illustrated growth at a 15-18 percent CAGR, as great fund managers have been able to provide the same in the last 20 years! He claims, he can predict who those fund managers will be in the next 20 years and hence, her goals will be fulfilled. But obviously, she doesn’t know what she doesn’t know.

Oh, and here is another trivia: Her EMI is about three times the amount of money she is investing as SIPs in mutual funds. Like most of us, she has more than one life insurance policy, yielding exactly how much is not very clear.

If you know the math of how an EMI works and you know that compounding in investments doesn’t happen unless a stipulated gain gets reinvested at periodic intervals, you must be laughing out loud at this moment. Otherwise you may be bewildered, just like my friend, Paro.

Unfortunately, Paro and the lot of us, belong to a strangely ‘sandwiched generation’ that not only wants to give the best to their children but also wants to care for elders, give them the best medical assistance and support.

In our own lives, we have just started to have a lifestyle of some sort and want to protect it fiercely as well. However, we do not yet completely understand the impact of not having a defined pension – something the bulk of middle-class retirees of the previous generation have had the privileged to take for granted.

A elderly couple holds hands while walking on a path. (Photographer: David Paul Morris/Bloomberg)
A elderly couple holds hands while walking on a path. (Photographer: David Paul Morris/Bloomberg)
India, A Nation Of Money Avoiders

Why GenX Needs To Be ‘More’ Financially Prepared

Some truths are universal – they have no boundaries, no geographical barriers to them. While reading Larry Swedroe and Kevin Grogan’s, Your Complete Guide to a Successful & Secure Retirement, I came across the following:

‘The Sandwich Generation: Women Caring for Parents and Children’, a 2006 Bureau of Labor Statistics study in the U.S., looked to quantify the costs of being part of the sandwich generation. The authors estimated that 20 million American women are in this stage—generally between the age 45 and 54—and that they are responsible for $18 billion of intra-family transfers and 2.4 billion of unpaid hours worked for caregiving.

And, ‘The MetLife Study of Caregiving Costs to Working Caregivers’ found that 10 million over the age of 50 care for their aging parents, a number that has tripled over the past 15 years. Providing this care has both emotional and financial implications.

Incidentally, the authors also go on to say that women are less likely to marry again after a grey divorce and hence do not have the support of a dual income sometime in the future either.

Young women enter a skilling institute in New Delhi. (Photograph: Udit Kulshrestha/Bloomberg)
Young women enter a skilling institute in New Delhi. (Photograph: Udit Kulshrestha/Bloomberg)
When Investing, Bow To Process, Not Personality

We have drifted into this situation in almost all parts of the world. No one has ever needed more guidance and financial planning than our generation. Larry’s book has some practical suggestions that one can follow to straighten out their affairs – at least some of us, for whom more ‘telling’ works.

Reading a book or ‘knowing what to do’, however isn’t enough for most of us. We all have behavioural patterns that need to be checked and we need handholding and guidance for the same.

Wouldn’t it be great to learn about similar statistics for our country?

India Needs A More Regulated Financial Advisory System

India traditionally never had a social security scheme. The least, that institutions and regulators can do is to create an environment where financial advisors are created and can flourish. All we have in the name of wealth management are product selling institutions competing for assets and commissions.

The RIA regulations - SEBI (Investment Adviser) Regulations, 2013, never took off, fee-based financial planning gets no support whatsoever and we are totally unprepared. We should be able to create an army of knowledgeable advisors who can handhold and guide clients. If not anything, we need to have these conversations and we need to have them now. We need to coach and guide our women and we need to be properly remunerated for doing so. Financial advisory could well become a coveted career if the required education were defined, the fees had a threshold and the industry had the government’s backing.

Financial counselling and coaching needs to undergo a revolution of sorts in the country. Listening to mindless debates on the budget, creating wish-lists for the new Finance Minister and tweeting with her name’s hashtag on social media never made anyone wiser with their personal finances. That, I am afraid is the sad truth of life.

Among other things, our generation also needs to move away from the clutter of useless information and focus on things that truly matter.

And if you were interested to know about what happened to Paro, she has already taken the first step – to aggressively reduce her home loan liability. I remember Ian Cassel (of the MicroCap Club and the Intelligent Fanatics Project) once saying – “Paying off your mortgage always feels like a multi-bagger because your worst-case scenario just got a lot better."

We are revising her financial plan with a more realistic return expectation and working on rationalising her expenses. After all, she doesn’t want to have to ask her daughter for money in her old age, proud woman that she has lived her life as.

She is stoic about it all and is a money vigilante by nature. I get a feeling that like in all other spheres of life, she will sail through this one as well, albeit with a little bit of hand-holding, that we all need and deserve, from time to time.

Abaneeta Chakraborty has close to two decades of experience in managing money for ultra-HNI families. She founded the firm Abanwill Consultants LLP in 2017 to provide independent views on investing.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.