The greatest financial risks facing single mothers (and how to mitigate them)

Mother with daughter

Without the backup of a partner or the security of running a double-income household, single mothers face a unique set of financial risks. In this article, we explore the nature of these risks and the steps that single mothers can take to protect themselves financially.

Potential risk 1: Maintenance not being paid

Being dependent on your child’s other parent for maintenance is a huge risk, especially if you are unable to cover your monthly living expenses in the absence of it. Women’s struggles to ensure maintenance is paid in full and on time are well-documented and, as a single mother, protecting your monthly cashflow position against the prospect of late or non-payment is critical – bearing in mind that approaching Maintenance Courts for recourse can be frustrated with delays and postponements.

Steps to take: The safest way to protect oneself is to accumulate an emergency fund that is specifically designed as a financial stopgap should your child’s parent let you down. Without access to cash to tide you through this period, you may need to access high-interest debt which is going to escalate over time. Allow yourself access to enough money to tide you over for at least three months while you seek legal relief – or more if the maintenance payer has a history of defaulting.

Potential risk 2: Illness or disability

Running a single-income home means that you’re largely dependent on your ability to generate an income – and any form of severe illness or disability (temporary or otherwise) can adversely affect your financial stability as well as your ability to save for the future, and it’s critical to take steps to protect your future earning potential.

Steps to take: An effective way to protect your earnings against the risk of disability or illness is to put a comprehensive income protector in place, although keep in mind that certain high-risk occupations are precluded from this type of cover. When taking out this type of cover, you can select the level of income you need to protect should you become disabled, as well as the waiting period that you’d like to apply. Generally speaking, a three-month waiting period is a more affordable option although it means that you’ll need to have access to sufficient cash to cover your living expenses during this period. 

Potential risk 3: Job loss

Again, as the sole breadwinner, losing one’s job can have catastrophic consequences for you and your children. Whether you run your own business, operate on a contract or retainer basis, or are formally employed, there are steps you can take to protect your finances against job loss or loss of earnings.

Steps to take: While putting retrenchment cover in place is an option, this type of benefit is offered by a limited number of insurers and is relatively expensive cover. Further, the retrenchment payout is generally limited to a period of six months. An effective way to protect against the risk of retrenchment is to ensure that you have access to enough capital to tide you through a period of up to six months while you seek alternative employment – bearing in mind that this can be in the form of a specially earmarked savings account, discretionary investment portfolio or your access bond.

Potential risk 4: Not having a support system

Single mothers know the value of a trusted support system, whether in the form of parents, siblings, friends, or colleagues – bearing in mind that the absence of a reliable support structure can cost you in the form of childminding, transport, daycare, babysitting and convenience purchases, as well as the lost opportunity costs of having to take time off work.

Steps to take: Be intentional about finding your tribe of trusted support so that when life happens, you don’t have to incur unnecessary costs trying to juggle the crisis. 

Potential risk 5: Dying without a will

Dying without a Will means that your assets will be distributed to your intestate heirs in the event of death. The greatest risk here is that any funds left to your children will be administered by the State-run Guardian’s Fund until your children reach the age of 18. It also means that you won’t have the opportunity to appoint a legal guardian for your children which is a huge risk, especially where you are the only living guardian.

Steps to take: When drafting your Will, consider setting up a testamentary trust in which to house those assets you intend to bequeath to your minor children. In addition, ensure that you nominate a legal guardian for your children whom you trust implicitly to care for your children should tragedy strike.

Potential risk 6: Not having access to private healthcare

Without access to private healthcare, you’ll likely have to rely on State facilities for your care and treatment – and while there are some excellent government facilities out there, the reality is that they’re overburdened and understaffed, and accessing treatment can mean taking chunks of time off work to wait in queues.

Steps to take: Medical aid is a high-cost benefit and is likely to be a large line item in your budget, but it can end up saving you in the long run, especially if you optimise your benefits. Network options are generally more cost-effective although it’s important to ensure that there are contracted facilities in your area.

Potential risk 7: Financial provision for children if you die

In the event of your premature death, there is a risk that your children will not be adequately provided for, especially if you are the only guardian or if the other parent lacks financial means to care for your children.

Steps to take: Life cover is an effective estate planning tool to ensure that your children’s nominated guardians have immediate access to capital, although it is important to keep in mind that nominating minor children as beneficiaries to your life policy is not ideal. Remember, children under the age of 18 are not capable of inheriting directly which means that the proceeds of any life policies left to minor children will be administered by the Guardian’s Fund. A better approach would be to nominate your testamentary trust as the beneficiary of your life policy.

Potential risk 8: Poor credit score

A poor credit score can be a stumbling block to creating wealth, especially when it comes to accessing finance or securing affordable credit. A poor credit score may even prevent you from securing a home loan which can be an important tool for leveraging and growing your net worth.

Steps to take: Firstly, check your credit score so that you know exactly where you stand in the rating system. Secondly, be sure to understand exactly how the score is calculated. A favourable credit score can take a number of years to secure, so develop a set of incremental steps towards building a better score and ultimately a stronger financial future.

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