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Financial plan for families through different life cycles

It's important to pay attention to changes in the roles you play over time within the family unit.

Like the four seasons, the family life cycle follows a natural cycle of change. This concept, first proposed by American anthropologist Paul C Glick in 1947, generally states that each family will experience changes as it transitions into different stages of its life cycle. Over time, your family’s needs will also shift as its age profile changes.

The family life cycle offers clues to the way a family develops. The transitions between each stage will likely trigger changes in family relationships and financial requirements. The shift between different phases helps determine the path of growth and development of family members.

Paul C Glick divided the family life cycle into 6 classic stages: formation, development, stability, contraction, empty nest and disintegration. Based on these 6 stages and a family's wealth requirements, wealth management experts have in turn split the family life cycle into 4 phases: formation, growth, maturity and decline.

Although there are significant differences in your investment and wealth management, insurance plans, and borrowing requirements during each family life cycle stage, you should always consider liquidity, profitability and security at each phase.

  • Family formation stage: Begins when you get married

    Fact: You need money for your wedding and to build a home. Small spending peaks will emerge at the milestones of your wedding banquet, new home purchase and when you're expecting a baby

    Characteristics: This is the stage when your income is still relatively low and your economic burden at its heaviest, but your capacity to withstand risks is relatively strong

    Tips: This is the savings stage where you could consider savings, bonds or insurance plans

  • Family growth stage: Begins when your child enters preschool

    Fact: Education expenses and living expenses will increase significantly at this point

    Characteristics: You're at the wealth accumulation stage where your priority is helping your children finish their studies successfully

    Tips: You're at the peak of your insurance coverage needs. You should prioritise wealth management for your children’s education expenses and living expenses

  • Family maturity stage: Begins when your children start work

    Fact: Your financial burden over the family begins to ease

    Characteristics: Work, life, wealth accumulation and all other areas peak, while expenses gradually decline

    Tips: Plan for life after retirement and aim to repay all your debts before then. You could choose to invest more after reducing your debt burden. You could switch the focus of your insurance policies toward retirement insurance

  • Family decline stage: Begins at retirement

    Fact: Family members are getting older, and with age comes more frequent health issues

    Characteristics: After you and your spouse retire, expenses will exceed income for most families

    Tips: During your retirement, having savings in the bank is important, but in the event of an emergency, medical and health insurance plans are also crucial

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