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The Invisible Money Generation

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Today’s kids have a different concept of money to previous generations. Instead of using coins and bank notes, this generation has grown up watching people buy things by tapping and swiping or clicking buttons online. They live in a world where in-app purchases, electronic bank transfers and digital currencies like bitcoin are as common as piggy banks were back in the day.

It’s no wonder that research from the Financial Planning Association (FPA) revealed two in three Australian parents say it’s difficult for their children to grasp the actual value of money.

DIGITAL NATIVES
Generations Z (born 1995 to 2009) and Alpha (born after 2010) are the invisible money generation – citizens of an increasingly digital world with the Internet at their fingertips. They are savvy with technology because they’ve been using it all their lives, and having ready access to all the information they want has made them more curious in matters of money and life than any previous generation.

These digital natives don’t just learn about money from their parents. They gather their information from a wide variety of sources, including grandparents (63%), teachers or coaches (59%), peers (26%) and social media (18%).

How children use digital money Ages 9-13 Ages 14-18
Make online purchases for themselves or their family 30% 68%
Buy a mobile app or in-app purchase, or a console in-game purchase 48% 66%
Transact with debit/credit card or other form of digital money 31% 65%
Make a purchase using a mobile phone 24% 44%

MORE CONFIDENT, BUT WORSE OFF
The FPA research showed parents recognise that their children are more engaged with money than they were at their age. Compared to their own childhoods, 69% of parents say their children are more confident asking questions about money and 57% feel their kids are more financially literate.

Yet, 62% of parents believe their children’s generation will be financially worse off than they were. Uncertain economic conditions and the growing cost of living play a part in this belief, but for many this fear goes beyond external influences. More than two in five parents are concerned that their kids won’t have the financial skills they will need as adults to become financially successful.

FINANCIAL STRESS AND UNCERTAINTY
It’s possible that financial stress and limited financial literacy are affecting people’s confidence when it comes to talking about money. Almost two in three young parents (aged 18-29) say they are very or somewhat stressed, while that number is closer to one in three for those aged 60 or over. People living in regional or remote areas are more likely to be financially stressed than their city-dwelling counterparts, and single parents report a much higher level of stress (67%) than those who live in two-parent households (47%).

Parents who are financially stressed are less likely to talk about money to their kids compared to those who don’t feel stressed – with 32% admitting they’re reluctant to have these conversations because they don’t want their kids to worry about money. But the FPA report revealed that children who participate in conversations about money are more curious, confident and financially literate than those who don’t – even if the conversations aren’t always positive.

WANT TO KNOW MORE?
Seeking advice from a financial adviser can build your financial literacy and confidence. If you would like to know more speak to your financial adviser.

 

Source: Colonial First State

Raising resilient, passionate children

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People often say that their biggest worry is what will happen to their children and their grand-children when they are gone. It is one thing to hand on a substantial estate – generally built through years of hard work, discipline and planning. It is another to be confident that our children and grand-children will themselves have the discipline and the emotional resilience to make the most of the opportunities that they are presented.

Growing resilient, passionate kids in affluence

We all as parents are doing our best to raise self-disciplined, appreciative, and resourceful children who are not spoiled by the prosperity around them. So why does it seem that the more we give them, the more ungrateful and entitled some children become? How can we use the advantages they already have to move them from striving to thriving?

MISTAKE: We cotton-wool our children from experiencing risk

Our own parents sent us out to play and didn’t call us in until dinner was ready. Someone always came home with a black eye or a nail in their foot. So why has parenting swung so far towards protecting our kids that we are preventing their growth and thriving?

Safety regulations, legal litigation and a heightened awareness of the dangers in our environment have turned us into over protectors. The “safety first” obsession plays into our fear of losing our kids, so we do all we can to shield them from harm. If a child doesn’t play outside, climb too high and fall, they frequently have phobias as adults.

STRATEGY: Let your kids explore their environment rather than the Internet

Let children play in a physically, emotionally stimulating and challenging environments that involve risk, and they may grow into better adjusted and more confident adults.

STRATEGY: Encourage your kids to try a new skill, especially if it frightens them

From public speaking to rock climbing, kids need to fall a few times to learn it’s normal; teens need to break up with a boyfriend or girlfriend to understand the emotional maturity that lasting relationships require.

MISTAKE: We rescue too quickly

Ever been the recipient or sender of a message to a fellow parent trying to sort out your childrens’ friendships? While this may look like sticking up for your child, it deprives them of the chance to stick up for themselves. By swooping in and intervening on behalf of our children, we are depriving them of the opportunity to encounter an obstacle and navigate around it. We are robbing them of the skills needed to solve problems independently. We are offering short-term relief and long-term low self-esteem.

STRATEGY: Let your children solve their own problems

Guide your child through a series of open questions towards finding their own solutions to their challenges. You are there to support and console them, but not to fix the problem. From a tough friendship dynamic to an academic concern, ask your child to brainstorm ways of solving the problem, all the while supporting and nurturing them.

MISTAKE: We praise too easily

Life is about winning and losing, not just winning. When Mum and Dad are constantly telling their children how clever/ pretty/talented they are, they doubt the objectivity of their parents and learn to cheat, exaggerate and lie and to avoid difficult reality.

STRATEGY: Praise for Effort not Result

Praising children’s intelligence can encourage them to embrace self-defeating behaviours such as worrying about failure and avoiding risks. However, when children are taught the value of concentrating, strategizing and working hard when dealing with academic challenges, this encourages them to sustain their motivation, performance and self-esteem.

MISTAKE: We try to be friends with our children and treat them all ‘equally’

Your child doesn’t need a friend in you, they need a parent. We may want them to like us so much that we try to avoid making the tough calls that may disappoint or frustrate them.

With multiple kids, when one does well, we feel it’s unfair to praise and reward them unless we also praise and reward their sibling/s. This is unrealistic and misses an opportunity to enforce the point to our kids that success is dependent upon our own actions and good deeds.

STRATEGY: Parent your children don’t befriend them

Your child does not have to love you every minute. Sometimes they need to be disappointed and frustrated by you in order to understand that conflict and boundary-setting are part of any healthy relationship. Your kids will get over the disappointment of not going to the hottest party or buying the latest gadget, but they won’t get over the effects of being spoiled. So tell them “no” or “not now,” and let them fight for what they really value and need.

STRATEGY: Parent each child according to their needs

Your children have different shoe sizes, different wants and needs and different personalities from their siblings, so you can’t parent them as if they were the same person. Treat each child as an individual and celebrate their uniqueness.

MISTAKE: We don’t practice what we preach

As parents, it is our responsibility to model the life we want our children to live. Children are very capable of pointing out the double standards we have and are the first to catch us out if we tell them to do as we say not as we do.

STRATEGY: Live in your integrity

If we want our offspring to be accountable for their words and actions, we have to be too. Show your kids what it means to give selflessly and joyfully. Work on your own passion and commitment and your kids will learn to be passionate and committed. Communicate clearly, respectfully and honestly. There is no point shouting at kids that they have no manners or respect when you are demonstrating the same trait.

MISTAKE: We give our kids our money, not our time

We work hard and we’re time poor. There is always another email to answer or another phone call to make. We may be doing all this hard work so our kids can benefit but when we rush from the chaos of the day we may miss the ordinary moments that our kids crave with us. We may compensate by buying them wonderful gadgets or throwing them great parties but nothing makes up for time.

STRATEGY: Prioritise time with each other

Turn the electronics off and have a real conversation. Speak about the highlights and lowlights of your day, ask them about theirs. Make your questions count, and listen to the answers. Make a special family time so that everyone knows Saturday afternoon or Thursday evening is just for the family.

 

Source:  LaTrobe Financial

Introducing Children to Money

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How do we educate, motivate and empower children to become regular savers and investors? Here are 15 simple ways to help educate children about personal finance and managing money:

1. As soon as children can count, introduce them to money. Observation and repetition are two important ways children learn.

2. Communicate with children as they grow about your values concerning money. How to save it, how to make it grow, and most importantly, how to spend it wisely.

3. Help children learn the differences between needs, wants, and wishes. This will prepare them for making good spending decisions in the future.

4. Setting goals is fundamental to learning the value of money and saving. Nearly every toy or other item children ask their parents to buy them can become the object of a goal-setting session. Such goal-setting helps children learn to become responsible for themselves.

5. Introduce children to the value of saving versus spending. Explain and demonstrate the concept of earning interest income on savings. Consider paying interest on money children save at home; children can help calculate the interest and see how fast money accumulates through the power of compound interest. Some parents even offer to match what children save on their own.

Allowance and Spending Decisions

6. When giving children a allowance, give them the money in denominations that encourage saving. If the amount is $5, give them 5-1-dollar coins and encourage that at least one dollar be set aside in savings.

7. Take children to a bank to open their own savings accounts. Beginning the regular savings habit early is one of the keys to savings success.

8. Keeping good records of money saved, invested, or spent is another important skill young people must learn. To make it easy, use 12 envelopes, 1 for each month, with a larger envelope to hold all the envelopes for the year. Establish this system for each child. Encourage children to place receipts from all purchases in the envelopes and keep notes on what they do with their money.

9. Use regular shopping trips as opportunities to teach children the value of money. Going to the grocery store is often a child’s first spending experience. Spending smarter at the grocery store (using coupons, shopping sales, and comparing unit prices) can save more than $1,800 a year for a family of four. When going to other stores, show them how to check for value, quality, reparability, warranty, and other consumer concerns.

10. Allow young people to make spending decisions. Whether good or poor, they will learn from their spending choices. You can then initiate an open discussion of spending pros and cons before more spending takes place. Encourage them to use common sense when buying. This means doing research before making major purchases, waiting for the right time to buy, and using the “spending-by-choice” technique. This technique involves selecting at least three other things the money could be spent on setting aside money for one of the items, and then making a choice of which item to purchase.

Buying Smart

11. Show children how to evaluate TV, radio, and print ads for products. Will a product really perform and do what the commercials say? Is a price offered truly a sale price? Are alternative products available that will do a better job, perhaps for less cost, or offer better value?

12. Alert children to the dangers of borrowing and paying interest. If you charge interest on small loans you make to them, they will learn quickly how expensive it is to rent someone else’s money for a specified period of time.

13. When using a credit card at a restaurant, take the opportunity to teach children about how credit cards work. Explain to children how to verify the charges, how to calculate the tip, and how to guard against credit card fraud.

14. Be cautious about making credit cards available to young people. Credit cards have a message: “spend!”.

15. Establish a regular schedule for family discussions about finances. This is especially helpful to younger children–it can be the time when they tote up their savings and receive interest. Other discussion topics should include the difference between cash, cheques and credit cards, wise spending habits, how to avoid the use of credit, and the advantages of saving and investment growth. With teenagers, it’s also useful to discuss what’s happening with the national and local economies, how to economise at home, and alternatives to spending money.

Source: LaTrobe Financial

ARE YOU THE MEAT IN THE SANDWICH?

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Do you find yourself being spread thinly worrying about supporting ageing parents while trying to help your own children financially? With proper planning, you can support those you care for and still live the life you want.

Looking up the family tree

People are living longer. In 1901, only 4% of Australians were aged 65 years or older. By 2010, this figure had risen to 13.5%, and is estimated to increase to up to 23% by 2041.*

As your parents’ age you may be called on to care for them in ways you may not be emotionally and financially prepared for. Here are a few strategies that can help you plan;

  • Legal measures such as enduring power of attorney give you the power to make financial decisions on behalf of your parents. If they lose capacity, it makes it much easier for you to make decisions that protect them and their assets.
  • Expert investment planning can help your parents purchase aged care or nursing home accommodation and services if the need arises.
  • Appointing a professional trustee to manage day-to-day financial affairs so your parents can ensure their assets are expertly managed, allowing you to spend time with your parents rather than their accountants.

Looking down the family tree

This means looking out for your children, no matter how old they are. Good financial pre-planning for your children can cover a range of issues such as:

  • Helping them buy their own home, without affecting your own future lifestyle. Tax, superannuation, insurance and estate planning approaches can make this possible.
  • Ensuring your children or grandchildren are carefully considered in situations such as divorce or blended families.
  • Protecting vulnerable children. Some children need extra care, and money alone isn’t enough.

Plan for your peace of mind

The reality is that someone you care about is likely to need your financial assistance at some point – it may be your parents, your partner, children or grandchildren. That’s why it’s so important to look up and down the family tree when reviewing or planning your financial future. And that includes looking after yourself with the right medical and life insurance cover.

A plan will help you secure your financial future in a tax effective way, underpinned by thoughtful consideration rather than being created under the emotional weight of an emergency.

 

* Australian Bureau of Statistics

Source: Perpetual Trustees

Helping children buy a home while protecting parent’s interests

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Gift-from-Mum-and-DadAs reported in the media at the end of January, Cate Blanchett and her husband recently bought a waterfront investment property for nearly $2 million, apparently as an investment for their three sons.

 

 

This is indicative of the trend of parents wanting to help their children get a start in life, particularly since the Australian property market is so hard to break into. The desire to help is further intensified if there are grandchildren on the way. A 2012 survey of Australians aged 50 and over revealed that parents give $22 billion a year to their adult children to help them get established, buy property and tide them over during tough times.” This is all well and good, but what are some of the issues that these benevolent parents should consider?

Gift, loan or other?

One way to help adult children buy a home is providing them with money to help with a deposit. The gift may be given directly or contributed to a First Home Saver Account, a tax-effective way to save for a home. The problem with gifting is that the money is not protected in the event your child is married or in a relationship, and your child and partner then separate or divorce. In the event of a relationship breakdown, the gift becomes part of the joint assets of the relationship. Another issue with gifting is where parents intend to receive the age pension within the next five years. Any asset or amount over or above $10,000 gifted by a single person or couple in a single financial year or above $30,000 over a five year rolling period impacts on parents’ pension entitlements for five years.

A better way to provide support and to protect parents’ interests is through a written loan agreement. Even though children may view this as an expression of distrust, a written agreement would give all parties certainty about what has been agreed and what is expected of everyone. It would show the family that they are serious about repaying the loan. A loan agreement would ensure that the parents’ rights are protected in the event a child’s relationship with his or her spouse or partner broke down. It would also be helpful in preventing sibling jealousy with respect to parents’ assets and future inheritances.

Another option is for parents to provide guarantor support for their children by providing either the parents’ home or term deposits as security. Financial institutions offer a variety of options. The Commonwealth Bank has a facility called Guarantor Support, which would enable a child – through parental support – to borrow more funds than they could otherwise or purchase the property that they want rather than having to settle for a cheaper alternative.

Finally, parents could consider buying the property jointly with their children, but this would mean the parents would have their names on the title deeds. For both guarantor support and joint ownership of property, parents need to be aware that they are fully liable for their child’s loan obligations.

As further protection, parents who gift or lend money can insist that their child and spouse or partner enter into a binding financial agreement to ensure that the gift or loan is repaid if the relationship fails. These agreements can be made either before or during a marriage or de facto relationship.

Parents should always obtain specialist legal and taxation advice when setting up a loan for their children.

That said, here are some options to consider:

•    Should the loan be on interest free or commercial terms? Generally speaking, the more commercial the terms of the loan, the more likely the courts will be to view the loan as neither an asset of a relationship between a child and spouse/partner nor a financial resource of the child. The child should make repayments of the loan principal or pay interest at least annually.

•     If interest is charged, will it be fixed or variable or pegged to a bank interest rate?

•     Should the loan be open ended or does it need to be repaid within a certain time frame?

•     Should parents request security over the debt, even through the agreement is classed as a personal debt?

On the last point, one practical form of security is a caveat over the property. A caveat simply provides notice that a person claims a particular unregistered interest in the property, but it is not as powerful as a mortgage, which creates official rights over the property. In a bankruptcy context, failing to take security over the child’s assets may mean that other creditors get paid before the parent.

The importance of life insurance

Regardless of the way parents decide to financially help their children purchase a home, life insurance on the lives of children and even their partners should be considered. If illness, injury, or even death were to happen to an adult child who had just purchased home, it would be quite likely that the child – even one with a spouse or partner – would have trouble meeting mortgage repayments and could possibly even lose the home. The consequences would be compounded by the fact that the parents have provided funding, one way or another, with a potential impact on their retirement plans.

However, given that the child has just spent all his or her savings on the home purchase and associated costs, life insurance affordability would be an issue. Given this minimal cash flow, parents can also assist in this area, particularly as this would protect both themselves and their children. With lump sum covers (term life, TPD and trauma cover), the easiest way to do this is to set up a non-super (ordinary) life policy owned by the parents on the life of the child. This ownership structure would satisfy CGT exemptions under section 118-300 ITAA97 for term life (as the parents would be the original beneficial owners of the policy) and section 118-37 ITAA97 for TPD and trauma. These exemptions would also apply for cover over the life of the child’s spouse or de facto partner, so all lump-sum insurance proceeds would be tax free to the parents.

The good news is that given the age of the children, insurance premiums should be relatively low. The level of cover should at least be the amount of the loan or gift, so that the parents would not have a shortfall if an insurable event occurs. Income protection for the child should also be considered. This must be owned by the child to ensure that a tax deduction can be claimed, but of course the parents could also help out financially. Once the loan is repaid, the parents have the option of transferring the insurance cover to their adult children, so they could assume premium payments.

Summary

Most parents naturally want to help their children get started in life, and often provide a gift or a loan to help with a home deposit. The benefit of a properly documented loan is that it protects family finances in the event of an adult child’s relationship breakdown.

Life insurance on the adult children should be considered in order to protect the asset and parental financial support. The initial premiums can be paid by the parents and are relatively affordable given the age of the lives insured.

Source:  CommInsure