An unhealthy sandwich: breaking SA's cycle of financial dependence

Do you find yourself caught between financially supporting your children and aging parents? If so, you are part of the sandwich generation, a term used to describe individuals facing the challenge of providing for two financially dependent generations.

In South Africa, this situation is all too common with many individuals lacking sufficient savings for their own retirement due to the financial strain of supporting their parents and children. However, by adopting smart investment behaviours, we can break the cycle of intergenerational financial dependence and secure a better future for ourselves and our children.

Why financial dependence is so detrimental

Conservative estimates show that at least 30% of South African households are now multi generational. Moreover, an increasing number of adult children are returning home, adding further strain to already financially burdened households.

The sandwich generation faces several challenges that have long term implications for current and future generations. One major consequence is the detrimental effect on savings habits.

Understandably, individuals find it difficult to save for their own retirement when they need to allocate a significant portion of their income to support their family. This perpetuates a cycle of financial dependence, leaving little room for personal financial growth and long term security.

Five tips to help squeeze your way out of the sandwich

To break free from the financial challenges of the sandwich generation, Discovery Invest suggests adopting the following investment behaviours:

1. Invest early and more: The majority of South Africans have not invested enough towards their retirement. Increase your retirement savings as soon as possible, whether you are employed or self employed. Consider speaking to your employer about increasing your contributions while ensuring that your take home pay remains stable. And of course, remember to take advantage of the great tax benefits associated with retirement contributions.
2. Invest for longer: Consider planning to retire later or continuing to earn some form of income even after typical retirement age. This could be from consulting, renting or a different passive income stream. Extra contributions can make a big difference to your retirement savings as you'll be earning interest on a larger sum of money at that time. Late in your career is also when your salary is likely to be at its peak, meaning you could afford higher contributions or investing for longer.
3. Withdraw wisely: When changing jobs, avoid cashing out your retirement savings. Preserve your benefits in your current retirement fund or transfer them tax free to a new employer's fund or a preservation fund. Cashing out can significantly impede your progress towards achieving your retirement goals.
4. Live well and budget: Detailed budgeting is crucial to identifying areas where you can reduce expenses. By analysing your spending habits, you can make informed decisions about where to cut costs. Consider opting for in house or generic brands and prioritise essential items. This practice can help you save significant amounts each month. Plus, Discovery Invest rewards healthy investment and lifestyle behaviours with boosted investment returns! Learn more about how we can help you retire well.
5. Boost your income with a side hustle: Convert your hobbies or skills into a viable business or side hustle. In South Africa, there is a shortage of artisans and skilled laborers. Develop your skills and interests into a profitable venture that can generate additional income. This extra income can contribute to your everyday bills and retirement savings.
6. Enhance your employability: Take advantage of opportunities to acquire new skills and further your education. Many companies offer employees the chance to study and improve their marketability. By equipping yourself with valuable skills, you increase your employability and create more opportunities for income generation.

Breaking the cycle of financial dependence in the sandwich generation requires proactive steps and careful planning. The reality is, it may be necessary to work longer or smarter and save with more discipline and commitment. But by investing early, making wise financial decisions, living within our means, and exploring additional income sources, we can secure a better financial future for ourselves and our children.

Use one of these methods to get advice on how to break free of the sandwich generation trap and create a legacy of financial independence for generations to come:

• Chat to a financial adviser about Discovery Invest
• Leave your details here for a callback from a qualified financial adviser.