Your own emergency fund, medical insurance and retirement funds are your financial oxygen masks. Don't forget to strap them on even as you work on your parental financial toolkit
Middle class Indian fathers used to be distant, authoritarian and usually dictatorial. They ran the extended household with an iron fist keeping a tight hold on expenses. The middle class pre-independence Indian father struggled to meet the needs of an extended family with meagre income and prospects. The fight for economic survival translated into the immovable patriarch image. Economic growth has changed not just fortunes of families but also the equations within the home. Smaller, nuclear families, better economic prospects, and more money has meant a larger role for the father within the home. From changing nappies, to school pick and drop duties, to doctor visits, the dads are a part of bringing up the baby. However, in most households, for a variety of reasons, the one thing that has remained largely constant is the control of the finances.
What should such a father’s financial toolkit look like? The must-have financial products for a father are four: a life cover, education money, marriage corpus and a Will. Buy a plain vanilla pure term cover that is worth 8-10 times your annual income. Add another cover for any debts you have—home loan, car loan, personal loan, and so on. You need to have a plan to target the money needed for your children’s higher education and marriage. The further away the goal is, the larger allocation to equity you can make. Don’t forget to write a Will; death seldom knocks. Do your family a favour and put down your assets, their locations and what you plan to do with them in a Will.
Notice that a father’s financial toolkit has no place for child plans, endowment plans or money-back plans that are sold as investment panaceas for a family’s future. Life insurance firms know how to press the emotional button of a new father and sell their child plans to you. Evaluate the plan on its return merit and compare with other products in the market. For your family’s security, you already have a term insurance plan. Do you really need to buy government securities through an insurance company at half the return?
This toolkit does not contain a real estate asset for the children either. Do your kids a favour and leave them only financial assets as their inheritance. Lawyers are getting fat fees and brokers fat commissions to manage, and rescue from squatters and tenants properties bought lovingly for the son and the daughter. Both are overseas in their Manhattan condos or on the beach in Orange County and the thought of that 2-BHK flat in Pune or Mysore brings them more tears than joy. Leave them real estate-free.
It is a good idea for a father to involve the kids in money matters and discuss the contents of the toolkit–why a product is there and why something else is not there. They will grow up and become fathers and mothers too and will remember these early lessons well. But even as a father sets out to provide and protect, he must not forget to put on his own financial oxygen mask first. Your own emergency fund, medical cover and retirement funds are your financial oxygen masks. Don’t forget to strap them on even as you work on your parental financial toolkit.
Monika Halan is consulting editor at Mint and writes on household finance, policy and regulation. She tweets at @monikahalan