Top financial tips to give your kids
28 Mar 2019
We have all learned some financial lessons the hard way through life so why not pass on some of that wisdom to the next generation?
It seems they are faced with even greater challenges than we were, with home prices skyrocketing in recent years and the pressures of consumerism and the ‘disposable society’ becoming an ever-increasing temptation. This makes it essential for us to take the lead with our kids and grandkids and pass on some money tips that they can use to make life a little more secure and little less financially stressful.
1. Saving sensibly
Some common sense habits you can pass on that are both simple to implement and produce real results include being committed to saving before you spend.
In other words, allocate a manageable savings percentage to come out of your income first, before you start thinking about what you need or want to spend. Those who use the opposite approach of spending first and trying to save what is left over will always find it a constant battle to achieve any kind of financial independence.
Once that ‘save first’ mindset is working, then you can refine your saving strategy around goals with different time frames. Some may be dedicated toward a medium term lifestyle reward, such as home renovations or vacations, while a proportion should always be allocated toward long term financial independence in a variety of savings and investment vehicles. This can include superannuation, a share portfolio, managed funds or property investment. The secret is to keep the allocation to each goal completely separate, so that you are not dipping into your long term ‘savings pot’ when you stumble over the latest special in a furniture store
2. Realistic Budgeting
Once your savings regime is sorted, then you can budget the rest of your income to enjoy a lifestyle that is within your means. A way to approach budgeting is to treat it as a method of allocating your income, ahead of time, to those things that are important or necessary for your lifestyle. A little planning ahead can save a lot of stress down the track.
Fortunately there are great budgeting systems available online or via a smart device app which can help you set up an income allocation system that works simply and effectively. One such system is offered through the Australian Securities and Investment Commission’s on their Money Smart website.
3. Put a ‘dollar value’ on your life
Perhaps the most important lesson you could pass on to your offspring relates to maintaining their financial independence when adversity occurs. Before the age of thirty, most kids think they are bullet proof, but we know from experience just how fragile life can be. Illness or injury can strike unexpectedly and can rock the foundations of the family unit.
The financial risks that such events carry are simply too great to leave unattended. Instilling in our children a sense of their ‘human life value’ and the need to protect it with personal insurances, such as life cover, income protection and trauma insurance could be the best thing you ever do for them.
Understanding human life value is simply a matter of considering their income earning capacity over a lifetime and what the consequences are of that suddenly being taken away. A simple visit to a financial planner to assess the risks and put some cover in place can save a young family’s financial future.
4. Taxing matters
Legitimate tax minimisation is a critical part of any investment strategy and as our kids grow their wealth they should be taking advantage of the opportunities that are available for income earners. This includes concessions available through superannuation, such as salary sacrifice strategies, low income co-contributions or spouse contribution tax offsets.
Tax advantages also exist in non-super investments, such as franking credits on shares or negative gearing on property or share market investments, so it pays to engage the services of a good financial planner to help develop a strategy that can take advantage of available tax incentives.
5. Investment is about growth, not gambling
Some younger people perceive that investment is all about picking winners to get rich quick. A valuable lesson you can pass on is to help your kids take a more pragmatic view of investment. They need to see it as a life-long process that uses principles such as diversification and dollar cost averaging to grow wealth methodically. This includes viewing higher risk investments, such as shares, as a tool for long term growth, rather than a way to make a quick win.
Building a dynamic and durable portfolio takes a lot of professional skill and this is where a financial planner can add so much value, through research resources and asset allocation strategies which meet a person’s risk profile.
Take the next step
To discuss the complex financial choices you’re facing, make an appointment with a Bridges financial planner.
We have an established alliance with Bridges, to provide our customers with financial advice. Bridges has been helping Australians prepare for their retirement for 30 years.
A Bridges financial planner will develop a plan specifically for you; one that’s tailored to your needs and circumstances, to help you achieve your goals, both in the lead up to retirement and during retirement.
To make an appointment with a Bridges financial planner, call Credit Union SA on (08) 8202 7777. The initial consultation is complimentary and obligation free.
Bridges Financial Services Pty Ltd (Bridges) ABN 60 003 474 977, ASX participant, AFSL No 240837. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner. Examples are illustrative only and are subject to the assumptions and qualifications disclosed. In referring members to Bridges, Credit Union SA does not accept liability or responsibility for any acts, omissions or advice provided by Bridges or its authorised representatives. Bridges is part of the IOOF group.
Credit Union SA refers its members and other people to Bridges and in return receives a commission of up to 22.5% of the fees and commissions they receive on investments, and a trailing commission of up to 0.20% per annum on funds held under management.