Manage your child’s expenses in unforeseen situations by planning your finances

The COVID-19 pandemic’s second wave unleashed unimaginable misery with countless families losing many of their loved ones in a matter of days. While the deluge of infections seem to have ebbed, the second wave left behind immense destruction with distraught families finding themselves pushed to the corner with the death of one or more of their earning members. Children have been the worst affected by the pandemic and the loss of one or more caregivers has put the future of many of them at risk.

In July 2021, a study published by The Lancet revealed that globally, from March 1, 2020, to April 30, 2021, more than 11 lakh children were estimated to have experienced the death of primary caregivers, including at least one parent or custodial grandparent and more than 15 lakh children had experienced the death of at least one primary or secondary caregiver due to the pandemic. The study used mortality and fertility data to model minimum estimates and rates of COVID-19-associated deaths of primary or secondary caregivers for children younger than 18 years in 21 countries including India. This figure stood at 1.86 lakh for India. According to NCPCR’s June 5 affidavit in the Supreme Court, over 3,500 children across the country have lost both their parents due to the deadly disease.

Although the central and state governments have stepped in to provide institutional support and financial aid to such children, the road to social and financial security remains riddled with difficulties for such children. Of these children, there may be many who have lost their fathers and their mothers may not be financially independent rendering their situation perilous. In many instances, the women may not even be aware of the full picture of the family’s investments and liabilities because it is still not an uncommon practice in India to keep women out of matters of financial management.

Ratna Singh (name changed), is a social worker who had met with a similar misfortune a few years ago when her husband passed away all of a sudden due to a heart attack. She remembers her daughter was in kindergarten and her son was studying in the third standard. “I became a homemaker after my daughter was born because we were living abroad then and it was difficult to continue working with little childcare support. My husband was doing very well on the professional front and that also made the decision to quit the workforce easier. Things changed drastically after he passed away and I was left to fend for myself and my two children,” narrates Singh.

For many women, especially those without their own sources of income, the death of their husbands can herald a period of acute financial distress. What makes matters worse is that many women either get too tied up in childcare and household duties to stay updated about the financial health of the family or they are deliberately kept from having a say in financial matters by the male members of the household owing to entrenched patriarchal beliefs. Consequently, when emergencies strike and the responsibility of taking care of themselves, their children and other members of the family befalls on them, women find themselves struggling to stay afloat.

Singh says, “I was one of the lucky ones to have a husband, who managed our finances meticulously and had made ample preparations in advance for unforeseen circumstances. Even then, finding the pieces of the puzzle and putting them together to be able to see the complete picture of where I stood financially was a painful process. While we had enough to sail through comfortably for a few years, I knew that ensuring that the rest of the journey stayed smooth for me and my children was my responsibility alone. That is when I realised I needed to have a solid strategy for saving and investing and had to start working on it at the earliest.”

After a few months of learning and unlearning and hits and misses, Singh was able to better understand the kind of investments she should make keeping her risk-taking abilities and goals in mind. “Initially, I was a firm believer in the advantages of sticking to low-risk traditional investment avenues – I had a string of fixed deposit investments and I bought gold with every extra bit of cash that I would be left with at the end of the month. Liquidity became a problem and my post-inflation post-tax returns looked dismal. That was when I maneuvered to mutual funds.”

Singh emphasizes that mutual fund investments helped give her the much-needed push to attain her financial goals which otherwise would have been difficult considering that she had to kick start her career after a long hiatus and the income was fairly low. “Equity mutual funds gave me the opportunity to earn high returns for fulfilling medium and long goals while debt securities became my go-to investments for short-term goals and for maintaining stability in my portfolio without facing liquidity problems. Tax planning woes were also easier to deal with and more importantly I could invest with a little amount without having to wait for a lumpsum to be saved,” she narrates.

Kaanan Ladha, founder of Invest Aaj for Kal says, “The tougher the situation, the more important it is to lay down financial goals and a suitable investment plan. Women who are single parents should start saving for goals like children’s education as early as possible via SIPs (systematic investment plan) in mutual funds. Suppose you need 40 lakh 15 years down the line for your child’s education, you can create that corpus by investing 8,000 in a fund with an expected rate of return of 12 percent but a delay of 5 years will increase that monthly investment amount to 17,500 at the same rate of return. An early start will help you make the most of the power of compounding and when it comes to investments, especially mutual funds, spending time in the market is more important than timing the market.”

Key takeaways

1. Do not relegate the responsibility of financial management to someone else (a friend or a family) in the aftermath of a tragedy. Should you feel unequipped, seek expert advice but do not let go off the reins completely from your hand.

2. Getting adequate insurance coverage and paying off loans should be the topmost priority in the aftermath of the death of an earning member. Before embarking on an investment routine, it is important to clear loans to avoid high interest rates and ruining existing credit scores.

3. Women who are single parents should start saving for goals like children’s education as early as possible via SIPs (systematic investment plan) in mutual funds.

This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.

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