As a parent and grandparent, it’s only natural that you’d want to share your financial wisdom with your children/grandchildren, to protect them from making the same mistakes you may have.
But how do you share your money tips in such a way that’s actually going to get them to listen?
Well it turns out, Aussie grandparents have, in fact, nailed three of the key tenets to saving money.
Better still, we’ve got the sums to prove they work.
So to find out what these money tips are, and how you can best communicate them to your children/grandchildren in a way that they will get them to take notice, keep reading…
Money tip 1: Live within your means
Let’s face it, this tip probably hasn’t knocked you off your chair with surprise but while it may be well-known, it’s often forgotten about.
Avoiding credit cards for unnecessary purchases, or using them sparingly, can represent a surprisingly large saving over the long term for your children/grandchildren, so it’s an important one to remind them about.
Example: potential savings of $6299
If your child/grandchild has an outstanding credit card debt of $3,000 on a card that charges 18 per cent interest, making the minimum repayment of $61 a month means they’ll take 25 years to pay off the debt – and end up paying $6,521 in interest.
Upping repayments to $300 a month would wipe out the $3,000 debt in just 11 months and keep interest charges at $222. That’s a saving of $6,299. Who wouldn’t be happy with that!
Putting it into action
Using online and mobile banking tools that make it easier track their spending, will help your children/grandchildren identify if their impulse buying and spending is getting out of hand.
Credit cards are handy for unexpected expenses and online purchases, but it’s important that they make sure they have the best possible credit card deal, particularly if they have a balance to transfer. Canstar provides ratings on a wide array of credit cards for them to compare.
For bigger purchases that they need to buy on credit, you may want to recommend working out how much they’d need to pay back each month to avoid any interest charges. They can also ask if their bank offers a repayment plan to help them do the calculations.
Money tip 2: Start saving early in life
There’s no denying it: the earlier you start saving, the better off you’ll be.
Two reasons: compound interest has a snowball effect that turns small deposits into a meaningful sum over time.
Regular saving, even in small amounts, also creates a ‘habit’ that’s key when it comes to putting aside money for life’s big purchases, such as a property.
Example: potential saving of $50,000 over 10 years
If your grandchild was on a salary of $55,000 a year, they could save more than $50,000 over 10 years, just by putting 10 per cent of their take-home pay – or $372 a month – into a savings account that pays 3 per cent interest.
Kick-starting a savings account with a $500 deposit, then contributing $372 a month, and making no withdrawals, could see their nest egg grow to $52,658 after 10 years, including earning $7,518 in interest.
Delaying their saving program by five years, however, would mean ending up with a final amount of just $24,629 – showing why starting off small as soon as possible pays off.
Putting it into practice
Making a budget is one of the best ways your children/grandchildren can figure out how much money they have available for saving. Their budget should include all income, bills, and other regular expenses.
They then need to decide how often they’ll require access to their savings and choose either a savings account for regular access, or a term deposit account if they can keep their cash locked up for a while. Canstar can help them compare the rates and terms on savings and term deposit accounts.
Setting achievable savings goals, even if they’re small, and giving themselves a little reward when they hit them, is also a great way to help them stay motivated.
Money tip 3: Put money aside for retirement
This is undoubtedly the hardest one to convince your children/grandchildren about, given they probably haven’t even contemplated their retirement until this point.
Salary sacrificing, which involves making additional contributions into super, is taxed at a concessional rate of 15 per cent. This could therefore decrease your children/grandchildren’s tax bill, as well as boost their retirement savings by a potentially life-changing amount.
Example: potential saving of $70,000
If your child/grandchild was on a $55,000 salary per year, they could retire with almost $70,000 more in their super by salary sacrificing just $150 a month. This would be in addition to what their employer is already contributing on their behalf ($5,225 a year at 9.5 per cent).
Assuming an existing super balance of $5,000 at the age of 25, contributing an extra $150 a month would result in a healthy balance of $311,562 at age 65. (The calculation assumes the fund charges $50 a year in fees and indirect costs of 0.6 per cent, and achieves an investment return of 4.8 per cent.)
Skipping the small salary sacrifice amount each month would result in a balance of $243,177 – a huge $68,385 less to enjoy in retirement.
Putting it into practice
Researching the basics of investment and super, to build a better understanding of how their money is being invested and the outcome that may have, is a great starting point for your children/grandchildren to get to know their super.
Information current as at 5 October 2018.
This article is published by BT - Part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714 and will published on the BT website at BT.com.au. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. Projections are predictive. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.
Superannuation is a long-term investment. The government has placed restrictions on when you can access your preserved benefits. The Government has set caps on the amount of money you can add to superannuation each year on a concessionally taxed basis. In addition, the government has set a non-concessional contributions cap. For more detail, speak with a financial adviser or visit the ATO website.
This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.
This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it.
Article prepared by The Cusp and reused with permission. Information current as at August 2018 and may contain material provided by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. While this material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses this material. Except where contrary to law, we intend by this notice to exclude liability for this material. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it.
The estimated savings are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the estimated savings are based are reasonable, the estimated savings may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The results ultimately achieved may differ materially from these estimated.