Father’s day serves as a reminder of just how important dads are.
With around 262,000 staying at home, Lemonade Money says we should show our appreciation by safeguarding their financial wellbeing.
According to the Office of National Statistics, an extra 16,000 dads opted to stay-at-home last year. Some suggest this role equates to a salary of £160,000 per annum. But with three quarters of adults having no life cover, Lemonade Money managing partner, David Pugh, warns parents are financially exposed:
If something happens to the main wage earner, the childcare provider will be left reliant on meagre State hand-outs or support from relatives and friends.
David adds that if something happens to the childcare provider, the wage earner will either have to pay for childcare or give up work. Which could make meeting everyday bills and future commitments a huge challenge. He suggests that by going through the household finances, and seeing where savings can be made, you could free up some financial revenue that can be channelled into life cover.
Financial cover outlined
David says that figuring out how much life cover you need is simple. Both partners need to work out how much they’d like their dependents to have. To do this, multiply the salary by 10 (as a general rule). Add outgoings, including debts and potential future costs. Then finally, decide how long the cover should run for (factoring in any future family growth). You can choose between a different levels. These include a fixed period, your lifetime or to cover your mortgage costs if you die.
Pension Contributions
David suspects very few home-based dads are replacing their lost employer pension contributions. This impacts your retirement fund. “With everyone financially stretched, it’s unlikely there’s anything left at the end of the month to build dad’s pension pot.” He says that if you divert everyday ‘invisible spends’ – coffees, after-work snacks and take-aways- into a personal pension, it could make a huge difference.
“Spending £2.50 per day, Monday to Friday, on a coffee alone will drain an average of £12.50 per week/£50 per month/£600 per year. Diverting £600 a year into a personal pension for dad results in a pot worth £720.”
While this may not seem much, the pot will soon grow over time.
Child benefit
If dads aren’t entitled to child benefits because their partner’s financial earnings are too high, you can still claim it. This will in turn entitle you to credits toward the stat pension. The child benefit awarded can then be recovered via their partner’s tax return.
When it comes to building a nest-egg for the children, David suggests re-directing child benefit into a savings vehicle. Putting half away each month, could save you up £500 a year.
David says Father’s Day is a good time to celebrate the growing number of dads who have swapped the office for childcare. It’s an equally good time to highlight the mechanisms they need to put in place, such as life cover, pensions and savings, to help make their future financial resilience.
For parents without the time or inclination to sort out life cover, a pension or saving for future goals, Lemonade Money has online tools to help. There’s a free and quick financial health check, so users can see where they’re at financially. For those who need extra support, Lemonade Heroes are on hand to help get finances on track.
