Changing times lead to changing family structures. And, that further leads to different classifications. For instance, sample these acronyms: DINK - Double Income No Kids, DISK - Double Income Single Kid and SISK - Single Income Single Kid. Confused? And as these different classifications emerge, financial planning for them also has to be tackled in a different manner. Here we look at the above mentioned families and how can they achieve their financial goals.
First, let's see why have these acronyms have emerged so strongly in our society during the last decade or so:
More educated women wanting to carve out a career for themselves, which they continue after marriage, leading to no or one child, and that too quite a few years later than in the past
Missing family support in bringing up children because of geographical distances leading to focus on creating of a corpus before having children
Lesser number of children so that the couple can offer the best facilities to its child
One of the big advantages of such families is that they have immense financial independence at a very young age. Therefore the ability to create substantial assets increases very early in life.
However, one should remember that these categorisations are based on the couple's choice and can change over time. That is, a DINK family generally does become a DISK family.
Let us look at a scenario where there are three couples, A, B and C. Let us make certain assumptions for the sake of uniformity in comparison. Let us assume that all husbands are aged 25 and wives aged 23. Family A is a DINK family and plans to have a child after eight years. Family B is also double income, but plans to have a child after three years. In family C, only the husband is working and the couple plans to have a child after three years. The combined income of families A and B are Rs 10 lakh (Rs 1 million) whereas family C has an income of Rs 700,000.
As far as expenditure goes, we consider similar spending habits, to the tune of Rs 400,000 a year before the child is born. We also assume an increase in expenses of another Rs 200,000 a year after childbirth for 21 years, till their children become independent.
All the working members will retire after 35 years. Inflation is assumed at 6 per cent per annum and growth in their assets - which is a mix of debt, equity and other asset classes, at 12 per cent a year. Income and expenses are expected to grow at 15 per cent a year.
All the families want to start saving their annual surplus for their retirement and when they have children, they want to invest a third of their savings for a period of 21 years for their child, with the balance continuing to go into their retirement corpus. Let us see they will fare, given their income and expense commitments (See Money Matters)
Money matters:
|
DINK |
DISK |
SISK | |
| Combined family income |
10 |
10 |
7 |
| Annual expense pre-child |
4 |
4 |
4 |
| Annual surplus pre-child |
6 |
6 |
6 |
| Years to childbirth |
8 |
3 |
3 |
| Annual expenses post-child |
6 |
6 |
6 |
| Investment for child's future for 21 years |
1.33 |
1.33 |
0.33 |
| Anual investment for retirement for 21 years |
2.67 |
2.67 |
0.67 |
| Annual investment for retirement for other years |
4 |
4 |
1 |
| Child's corpus in today's value at age 21 |
89.8 |
74.6 |
18.6 |
| REtirement corpus in today's value after 35 years |
651.7 |
622.3 |
242.8 |
We can see from the above table that Family A (DINK) will have a Rs 6.5 crore (Rs 65 million) as retirement package and another and Rs 90 lakh (Rs 9 million) for the child at 21 at today's value. Family B (DISK) will have Rs 6.2 crore (Rs 62 million) for themselves and Rs 75 lakh (Rs 7.5 million) for the child.
However, Family C can only have Rs 19 lakh (Rs 1.9 million) for the child and Rs 2.4 crore (Rs 24 million) for retirement.
One should note that these figures have been arrived at without considering taxes on investment income and assuming that these families invest all their surplus without having other needs like a house or car, etc. for sake of simplicity.
An analysis of the above figures shows us that Family A, which stays DINK for eight years, has not gained substantially more than Family B by postponing a child for another five years. The total extra gain for Family A is only Rs 45 lakh (Rs 4.5 million).
However, both families have gained substantially over the SISK family. This is due to the fact that both families have double incomes, while Family C does not. Therefore, we can conclude from this case that postponing having a child does not have as much financial effect on a family than having both spouses working, provided this can continue after childbirth.
We have briefly seen these three types of modern families, and the financial effects of the same. However, the numbers could change dramatically depending on the lifestyles of the couples.
The writer is director, Touchstone Wealth Planners.