Are you feeling squeezed? The financial challenges of being a member of the sandwich generation

A combination of demographic and lifestyle changes has resulted in many people facing the type of financial challenges they may not have encountered a generation ago.

One of these is increasing longevity. According to the Office for National Statistics, life expectancy has increased by 8 years for women and 11 years for men over the last half a century.

There have also been remarkable advances in medical technology over the same period. These have not only helped drive increases in longevity, but also mean that people are living comfortable lives with illnesses that they may previously not have survived.

While positive news, this can mean an increased potential for care provision, especially when it comes to your elderly relatives.

Additionally, more people are prioritising their careers and having children later than they previously tended to.

Data from Statista shows in 2020, the average age of a mother having their first child was 29.1, a figure that has been rising steadily over the last 50 years.

Being forced to juggle your career and family commitments, while potentially caring for your elderly relatives, can place you under immense pressure – both in terms of your time and in relation to prioritising your finances.

The sandwich generation

As you have read, if you are in this position, you are not alone. Indeed, the situation you are in has a name: the “sandwich generation”.

It’s a term that originated in 1981, developed by American sociologist Dorothy Miller. It refers to the increasing number of people who are financially supporting their elderly parents as well as their own children.

Indeed, according to Unum, as many as 6 million people could be juggling caring responsibilities for elderly relatives and looking after their children.

If you are in this position, here are some practical steps you can take to help manage your situation.

1. Make sure you prioritise yourself

Before considering the financial obligations you may face from family members – children and elderly parents – it’s important to help make sure you are financially secure.

I will often encourage clients to prioritise “paying themselves first” in terms of securing both their current lifestyle and their future wealth through pension contributions.

You could avoid the temptation to defer pension contributions until later, as this may merely create long-term problems with a limited window in which to solve them as you get close to retirement.

Only when you have established your own financial priorities, and how you will secure them, should you start taking steps to support other family members.

2. Protect your income

If you’re part of the sandwich generation, you need to appreciate that one of your greatest assets is your ability to earn money.

Without this, not only will you be unable to fund your lifestyle, but you won’t be able to support your loved ones either.

It’s important to consider what would happen if you become incapacitated, or you can’t work for any other reason, and how this would affect both you and your extended family.

As a result, you could consider taking proactive steps to guard against these circumstances with suitable income protection.

You also need to think about putting an emergency fund in place to protect you against the effect of any short-term unplanned financial commitments. I would normally recommend that this is between three and six months’ net income, subject to your personal circumstances.

3. Talk to your parents about their financial situation

When it comes to any financial commitments concerning your elderly parents, it’s important to establish a clear idea of what they may be.

As you will appreciate, discussions about money and health can be difficult at the best of times. This can be magnified if these chats are with your elderly parents, who may be used to being responsible for you, rather than you becoming responsible for them.

It’s awkward, but it’s a nettle that you need to grasp. In reality, you could well find that they are relieved to talk about their circumstances having not wanted to worry you.

4. Try and get a clear understanding of their financial circumstances

As well as talking to your parents, you may also want to encourage them to put their financial affairs in order if they haven’t done so already.

This will give you a clear idea of their current situation, such as the assets they have, any outstanding debts they may be servicing, and if they are claiming all of the benefits they are entitled to.

It may help to create a simple income and expenditure spreadsheet, together with a breakdown of their long-term and ongoing financial needs.

It can then be helpful to talk through their finances and determine what they can afford on their own and where you might need to help.

Of course, you may realise that they have the means to easily cover their outgoings, to the extent that they have a substantial surplus of wealth.

In these circumstances, you might want to consider broaching the subject of inheritance planning.

You may well find that some of your problems related to being squeezed between two generations could be solved through some strategic intergenerational financial planning.

A great example of this is asking your parents to help cover your children’s school fees, if appropriate.

5. Assess your financial commitment to your children

Your financial commitments relating to your children may be easier to manage.

For one thing, the timescales will be clearer. For example, knowing the ages of your children means you are likely to have a clear idea of any potential future school fees commitments, and when you will become liable for them.

Furthermore, any costs related to further education will most likely commence when your children are 18, or perhaps 19 if they take a “gap year” before starting their university degree course.

This can make it much easier to plan and give you a clear idea of what support you want to provide for your children, and the financial commitment required.

You’ll also have at least an outline understanding of what other support you may want to give, such as helping them to get on the housing ladder.

6. Take proactive estate planning steps

As you have already read, an important part of your financial plan will consider the intergenerational transfer of assets.

I have already touched on this with the potential for your parents to support their grandchildren’s school fees but there are also some other simple steps you can take.

First, I would encourage both you and your spouse or partner to put a will in place. You should also regularly review it as your circumstances change.

In this, you will set out your legacy and how you want your assets distributed after your death.

Equally importantly, you will also want to make sure your parents have up-to-date wills that accurately reflect the value of their assets and their wishes.

It could also make sound sense to suggest they have Lasting Power of Attorney (LPA) arrangements in place, in order that someone they trust can manage their financial affairs in the event of them becoming incapacitated, or unable to make financial decisions for themselves.

Get in touch

If you’d like to talk about your own financial circumstances, especially if you believe you are in the position outlined in this article, then please get in touch.

You can call me on 07769 156 250.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Equity investments do not afford the same capital security as deposit accounts.

The Financial Conduct Authority does not regulate will writing, taxation, estate planning and trust advice.