Money Tips for Single Parents Saving for Retirement and College
For Emma Johnson, one of the toughest things about being a single parent is living off just one income. "That's different from families where there's a stay-at-home parent, because ostensibly that second parent could always go back to work if there was a job loss or medical emergency or, God forbid, a death," she says. "It's such a more financially stable situation to have two parents in the family."
Johnson, a business journalist who writes about single motherhood at wealthysinglemommy.com, says that despite the extra challenge, single moms can thrive financially. "I've met so many amazing women who do amazing things they don't even think they can," such as starting their own businesses or significantly increasing their income, Johnson says.
[Read: How Modern Families Struggle with Finances.]
That journey to financial security, though, can come with some bumps along the way. A survey of 4,500 people from Allianz released this month found that many single parents seem to prioritize saving for college over saving for retirement, which could cause them -- and their children -- a lot of stress later. Three in four single parents said saving for retirement and college simultaneously was causing them stress. Single mother respondents, who earned an average of $78,800 compared to $94,600 for single fathers, reported higher levels of stress. Eight in 10 single moms said they were stressed about preparing for retirement and college expenses at the same time, compared to 7 in 10 single dads.
Financial experts generally recommend putting retirement savings before college savings. "These modern families are really focused on putting the family first, and sometimes that has resulted in a lot of single parents putting their own financial future at risk," says Katie Libbe, vice president of consumer insights at Allianz Life. "They might not be balancing that out with what they need personally and saving for themselves," she adds.
Libbe says parents should always be sure to sign up for 401(k)s if they have access through work, because that kind of account comes with tax advantages and often company matches. "No one should ignore the 401(k)," she says.
Talking openly about finances is also important. "Make sure your child understands all that goes into budgeting for college. There's a lot a child can do," she says, such as taking Advanced Placement courses in high school or taking classes at a local community college, which can end up reducing the price tag for a college degree. Students can also take charge of researching federal aid grants, student loans and scholarships that are available.
[See: How to Talk to Millennials About Money.]
Parents often try to protect their children from the stress of worrying about money and paying for college, Libbe adds, but avoiding those conversations can end up doing them a disservice. Talking openly about the importance of saving and cutting costs can help teens think through their choices and how to get what they want. She adds that younger generations, like today's college students, are already primed to absorb these kinds of financial lessons because of their experience with the Great Recession.
"With my own kid, he brought [the cost of college] to my attention. He asked, 'Why would we visit the University of Michigan, which costs $20,000 more than the other schools?'" Libbe agreed with him, and they ended up focusing on other state schools instead.
Libbe also suggests that single parents talk over these issues with friends -- single and married alike. "Every parent struggles with [the cost of college]," she says. "It's not something you have to do on your own." Moms in particular might want to consider brushing up on their personal finance skills, too, since just 32 percent of single moms in the Allianz survey described their level of financial planning expertise as excellent or above average, compared to more than 60 percent of single dads. Working with a financial professional is another option.
[See: U.S. News Financial Advisor Finder.]
Johnson also urges single parents to prioritize their retirement savings to prevent themselves from being a drain on their adult children later. "Single parents have fewer financial resources and less emotional and social support. [That] will fall disproportionately on adult children through no choice of their own," she says. "Do everything to take care of yourself so you're not a burden, or you're inevitably sacrificing your children's finances in the long term."
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