Daily Capital

Personal Finance for Single Fathers

KEY FINDINGS

  • During the pandemic, single working dads were much more likely to withdraw money from their retirement funds than the general population.
  • Single fathers were also most likely to adjust their planned retirement age due to the pandemic.
  • Single dads are more likely than the general population to be worried about their financial future.

 

For decades, the amount of single-parent households has been on the rise. But it’s still a relatively small number of fathers who raise their kids without a partner; less than 6.0% (about 2 million) of all fathers are single dads.

This Father’s Day, we’re taking a deeper look at this group of parents, including how they’ve adjusted their money habits due to the COVID-19 pandemic and how they can get on track with their personal finances.

Pandemic Finances for Single Dads

In this time of devastating financial struggles, single fathers were hit harder than the general population, according to our recent survey* with Empower Retirement.

We found that single working dads are less likely to characterize their financial situation as “optimistic” and more likely to say they are barely surviving and are worried after every paycheck.

When money is tight in the day-to-day, long-term financial planning tends to get shelved. Such is the case for the single working dads we surveyed — more than half (51%) said they are no longer confident in their ability to retire when they want.

We found that single parents overall are less confident in their finances, but single moms and dads appear to be reacting differently. Single moms are buckling down and not making too many changes, whereas single dads are making some big financial moves.

One area of deviation is long-term planning. Single dads were more likely to remove money from their workplace retirement plans as a result of COVID-19, with 49% saying they have or plan to remove money, versus 36% of the general population and 38% of single moms.

Single dads also opted to invest differently: 60% of single fathers told us they sold investments to reinvest; only 38% of the general population did so. Nearly half (49%) of single dads said they sold investments to cash out, again outweighing a more modest 37% of the general population.

Finally, single dads are also more likely to want help with their finances due to the COVID-19 pandemic (45% vs. 35% general population).

With that in mind, following are five personal finance considerations for single fathers.

1. Save Money for Emergencies

To solidify your financial confidence, build up a just-in-case stash that covers 3-6 months of basic expenses. Life throws curveballs — job loss, major medical bills, car repairs, home repairs — and an emergency fund keeps you ahead of the game.

Retired basketball all-star Baron Davis spoke with us about the value of saving. His grandmother taught him the importance of saving from a young age, and those lessons turned out to be critical when an injury forced him into early retirement from his basketball career.

“I always stuck by what my grandma taught me,” said this Financial Hero. “No matter how much money you make, save and invest what you earn. Stay humble.”

Read More: How Much Should You Have in an Emergency Fund?

2. Reduce Liabilities

Paying off high-interest debt should be one of your first priorities. One recent survey found the average American carries $29,800 of debt, excluding mortgages. The same survey revealed 15% of Americans believe they’ll never be debt-free.

If you have high-interest debt (generally anything above 9%), it may be worth tackling that as quickly as possible. The interest rate on credit cards often exceeds 20%, as does the rate on high-interest personal loans.

Millions of households use Personal Capital’s free personal finance tools to track their debt-paydown. You can get an overview of all your financial accounts in one place, create a spending plan, and plan for retirement with different scenarios.

Sign Up: Get Clarity on Your Money

3. Set a Budget

Expenses are part of life. Setting a budget is an easy way to identify your tendencies and make the most of your earnings. Empower Retirement found that Americans waste almost $1,500 a month on nonessential items. Added up, that’s close to $18,000 per year.

Dr. Lakisha L. Simmons was a recently divorced single mom when she decided to reconsider her finances. She downsized to an apartment, got comfortable with budgeting, and learned to invest. Within the span of four years, Simmons amassed a $750,000 net worth.

“All you have to do is take one step forward,” said Simmons, one of our Financial Heroes. “Just take one step at a time and you will get there.

Read More: How to Master a Household Budget

4. Keep Investing in Retirement

You can invest in your future while also — bonus! — saving money on taxes. Here are several tax-advantaged accounts you can use for your long-term plan:

  • 401k and IRA: Retirement accounts that allow you to contribute with pre-tax money, generally employee sponsored (and may offer an employer match)
  • Roth 401k and Roth IRA: Retirement accounts you contribute to with post-tax money, but then your money grows tax-free and disbursements are tax free
  • Health savings account (HSA): A tool for employees with high-deductible health insurance, offering a triple tax advantage
  • 529 plans: Save for your child’s college education without paying taxes on your earnings as long as you use them for education expenses

Learn More: 5 Tax Hacks Every Investor Should Know

5. Give Your Kids a Financial Education

Research indicates that children have their money habits set by age 7. One of the greatest gifts you can give your children is a foundation of financial literacy.

Holistic wellness expert Dr. Deepak Chopra learned to be mindful about money from a young age. As soon as he started earning a paycheck, his mother advised him to save 10% as if it were a monthly bill. Later in life, when Deepak was just beginning his medical career, he passed these lessons onto his own children.

Deepak’s daughter, Mallika Chopra, also a wellness expert and author, recalls her parents’ lessons of frugality when money was tight. “Because we grew up in that environment, my parents were always sharing with my brother and I ways in which we could save money, where we could invest money and also to be non-splurging all the time,” she said.

Empower Retirement suggests setting up a “Dad Deal.” To encourage your kids to pursue their dreams, you match their input up to a certain percentage based on what you can afford. For example, if they save up $50 each month for a new computer, you could match it at 100% (or lower) and give $50 to ultimately double their value.

Andy Hill, a financial podcaster and father of two, says one of the ways he invests in his kids’ future is by regularly talking with them about finances. Although he’d love to dive into concepts like investing and compound interest, they’re starting with the basics.

“Topics like needs vs. wants, how it’s important to give some of your money away, and smart spending habits are just a few of the chats we have when the moment strikes,” he wrote on Daily Capital. “These types of conversations and the experience and knowledge they gain could very well be our best investment for them.”

Plan for Your Family’s Future with Free Finance Tools

*This survey was conducted by The Harris Poll on behalf of Empower Retirement and Personal Capital from November 25, 2020 to December 11, 2020 among 2,008 respondents, 247 of whom self-identified as single parents and 88 of whom self-identified as single fathers. To qualify, respondents live in the US, ages 18+, employed full time or retired and not currently working in sensitive industries. Sensitive industries are defined as financial services or wealth management industries where a potential conflict of interest may exist.

Third party data is obtained from sources believed to be reliable; however, Personal Capital Corporation (“PCC”) cannot guarantee the accuracy, timeliness, completeness or fitness of this data for any particular purpose. Third party links are provided solely as a convenience and do not imply an affiliation, endorsement or approval by Personal Capital of the contents on such third party websites. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Alicia Castro is the Managing Editor of Daily Capital.
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