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December 1, 2020

admin In Financial Advice, Investments, Latest Updates, Money

How women can build their financial literacy

Recent studies show that more than two in five Australians lack confidence when it comes to financial decision making.

The Federal Government believes this is largely due to a lack of financial literacy within the community, which is why it has developed the National Financial Literacy strategy. This initiative aims to motivate Australians of all ages, genders and socioeconomic backgrounds to engage more with their finances. In turn, this will help people make informed financial decisions that will improve their economic wellbeing.

What does it mean for women?

As social norms and family structures have changed, financial decision-making is no longer the sole domain of the male breadwinner – these days it’s just as important for women to take charge. Yet women experience higher levels of stress when it comes to managing money, with more than a third saying they find it overwhelming.

That’s why it’s vital for women to build their financial literacy. Becoming more financially savvy can change a woman’s life, by empowering her to be self-sufficient and make confident decisions that will improve her financial situation. Currently, only 10% of Australian women retire with enough savings to fund a comfortable lifestyle – so by arming women with strategies to help close the ‘super gap’ at each life stage, they may become less reliant on social services in retirement.

How you can take control

The financial decisions women make throughout their lives can impact their financial position in later years. With this in mind, here are some things you can do to take control at each stage of your life journey.

Starting out

Generally speaking, the gender pay gap puts women on the back foot as soon as they enter the workforce. Although there may be greater equality between the sexes than ever before, women’s average salaries are still 17.3% lower than those of men doing the same job.

This highlights how important it is for women to be able to budget if they want to build their savings and get ahead.

Raising a family

Women are still more likely than men to take time out of the workforce to raise kids, which means they receive less in employer super contributions during their careers. This leads to a significant super gap – men have an average super balance of $292,500 when they retire compared to $138,150 for women.

That’s why you need to prepare carefully for your career breaks, and top up your super either before or after to make up any shortfalls. The Government’s Parental Leave Calculator and Career Break Super Calculator make it easier to plan your finances around having a family. Visit https://www.moneysmart.gov.au/tools-and-resources to access these calculators.

Paying off debts

If you’re like most women, the largest debt you’ll ever have to pay off is your home loan. Before taking the plunge into homeownership, a Mortgage Calculator can show you how much you can afford to borrow, so you can work out a repayment plan that fits your budget. And if you’re prone to splurging on your credit card, a Credit Card Calculator could help stop your debts from spiralling out of control. Visit https://www.moneysmart.gov.au/tools-and-resources to access these calculators.

Investing for the future

With lower confidence levels and a smaller appetite for risk in their investments, women are less likely than men to choose high-growth investments like shares. This also means they miss out on potentially higher returns. But as women generally retire earlier and live longer than men, they can expect to spend more time in retirement – which makes it even more important for them to have enough money to last the distance. As the first step, make sure your investment mix matches your life stage. That way your super and other investments will have the best chance of growing over time.

Your financial adviser can help

Because women face so many distinct challenges, they need customised solutions – which is where a licensed financial adviser comes in. If there’s ever an aspect of your finances that you’re unclear about, reach out to the Sherlock Wealth team to discuss your unique situation here. We can explain it in a way that makes sense to you, so you can make wiser financial decisions.

Source: AMP News & Insights.

October 20, 2020

admin In Latest Updates, Money, Wealth

Intergenerational Wealth: An introduction Part 1

A huge sum of wealth is acquired by beneficiaries every single year – whether in the form of inheritance after death, or via gift transfers. However, over the last few years, headlines about ‘the inheritance economy’ and ‘the big intergenerational wealth shift’ have appeared just about everywhere in developed economies.

Researchers across the globe reached the same conclusion: we are on the brink of a vast shift in assets, unlike any that we have seen before.¹ Globally, worldwide demographic trends are putting in place the foundations for the largest intergenerational wealth transfer in history over the next 50 years. In Australia alone, it is expected that we will see around $3.5 trillion change hands over the next 20 years, growing at 7% per year.²

Coined as ‘the Great Wealth Transfer’ of the 21st century (GWT), it is expected to bring about a total overhaul to the way that current financial advice practices work. Is your practice ready?

Drivers behind the Great Wealth Transfer

There are a number of contributory factors that account for this large shift in money. The two main reasons are the increased net worth and changes in life expectancies.

Increased net worth: property and equity markets

In 2017, Australian household’s net wealth stood at a record $8.1 trillion.³

Growth in household net worth has historically been largely tied to property values, income and ability to save this income.

A huge proportion of this increase has been due to the rise in property prices we’ve experienced in the last 25 years. This works out at an average annual real growth rate of 4.1% p.a. above general inflation and earnings growth as shown in Figure 1.⁴ The beneficiaries? Baby boomers, who were able to get on the property ladder in the 1980s, and stay on it ever since.⁵ Indeed, the Household, Income and Labour Dynamics in Australia (HILDA) survey shows that the home is still the biggest asset, with superannuation and other property following closely behind.⁶ Thanks to capital growth, property can be expected to account for around 70% of the wealth transferred over the coming years. ⁷

Figure 1: Real property growth over time

Source: OECD

Baby boomer wealth profiles are characterised by high levels of homeownership and the rewards of the periods of economic prosperity that have occurred throughout their adult lives.

In addition to homeownership, the introduction of the Superannuation Guarantee system in 1993 has seen substantial growth in levels of superannuation holdings, which in turn has increased the amount of potentially heritable assets.⁸

Booming equity markets are another contributory factor to Australians’ net worth. Capegemini’s 2018 World Wealth report indicates that a growing number of individuals have hugely increased their asset bank thanks to the equity rally we have experienced over the last few years.⁹

Increased life expectancy

Like their net worth, the life expectancy of baby boomers has increased. Thanks to a greater awareness of healthy living practices, medical advancements and improved assisted-living facilities, our elderly are living longer. Life expectancy in Australia at age 65 has significantly grown, especially since the 1970s – from 12.2 to 19.2 years for males and from 15.9 to 22.1 years for females as shown in Figure 2.

Figure 2: Life expectancy in years in Australia at age 65

Source: Australian Government Actuary, Australian Life Tables

Living longer means that our elderly community are holding onto their assets for longer. The population aged 75 years or more is expected to rise by 4 million between 2012 and 2060, increasing from about 6.4% to 14.4% of the population.¹⁰

However, projections suggest that we will see a rising number of deaths over the next few decades. From 147,200 in 2011-12, the Australian Bureau of Statistics (ABS) expects the annual number of deaths in Australia to more than double to 352,100 in 2061 and more than triple to 545,400 in 2101.¹¹ A significant proportion of these people is likely to transfer wealth upon death, so it is likely that we will see inheritance shift en masse.

Source: Russell Investments

¹ Cutler, N.E., D, S. J. 1996 An inheritance boom for boomers? Looking beyond the headlines. Journal of Financial Service Professionals, 50(5), 4.
² McCrindle (2016). Wealth Transfer Report, A Report for No More Practice, September. With an estimated 7.5 million children, if 70% of wealth is transferred then it is estimated approximately $326,000 on average will be passed on to each child. If this is spent, it is likely to be eroded in two years, but if managed well, it could help Gen X and Y fund their own retirements.
³ https://www.roymorgan.com/findings/7404-australian-households-net-wealth-now-over-eight-trillion-dollars-and-growing-201711092241
⁴ OECD Database (September 1993- June 2018)
⁵ Norman Morris, Roy Morgan Research November 2017
⁶ Johnson, D (2017) Australia’s hidden treasure: The immense potential of baby boomer housing equity in averting a retirement cashflow crisis. PhD thesis. Griffith University
⁷ Template, J., McDonald, P.Rice, J. Net assets available at age of death in Australia. Population Review Volume 56, Number 2, 2017., Sociology Demography Press.
⁸ The 2015 Intergenerational Report; Australia in 2055 predicted that superannuation assets alone could rise to $9 trillion by 2040 (Treasury, 2015).
⁹ CapeGemini, ‘World Wealth Report 2018’, p.16.
¹⁰ Productivity Commission, 2013. An Ageing Australia: Preparing for the Future,
¹¹ ABS 3222.0 – Population Projections, Australia, 2012 (base) to 2101 released Nov 2013

August 30, 2020

admin In Credit Cards, Latest Updates, Money

Should you give your teenager a credit card?

We live in a culture of smartphones, WIFI, home delivery, online shopping and online gaming, where most needs and wants can be met almost instantly. With so much temptation to spend, it’s vital to teach your kids the money skills to help them enjoy financial wellbeing as adults. But should you give your teenager a credit card?

Pre-paid, debit or credit?

You might like to start with a pre-paid card or a debit card, so there’s a limit on what they can spend. Set the rules on what it can be used for and how much they can spend. If they manage the process well, and if you’re confident that they’re responsible enough, you could give them a credit card (which would be a supplementary card connected to your own, as children under 18 cannot have their own card).

Before you give your teen a credit card, take the time to have a conversation about credit card fees, interest rates, and how spending irresponsibly can give you a bad credit rating, which is bad news for their future. Be clear that they will be responsible for all expenditure on the card – if they can’t afford it with cash, they shouldn’t put it on the credit card.

Rules, limits and know-how

Giving a teenager a credit card may seem risky or even irresponsible, but it can be a great teaching tool if the right conversations, rules and limits are put in place.

Before you give your teen a card, be sure to speak to them about how it works, how to be responsible with it and how to avoid financial trouble, including:

How interest works – it’s important that they understand that a credit card is like a loan and if they don’t pay it back on time, they’ll be charged interest.
Paying it off in full every month – show your teen a credit card statement and explain that if they only pay the minimum amount, they’ll still be charged interest.
Paying on time – show them where they can find the due date for payments and help them to set up reminders to pay on time every month to avoid interest.
Avoid overspending – teach your teen to keep track of their spending, and to never spend more than they earn. Use the credit card’s app to keep a tally on spending.
Start with a credit limit lower than they earn – it’s a good idea to start with a credit limit that is not more than what they earn in a month. For example, setting a low limit for a teen maybe $500 maximum so they can consistently pay it off at the end of each month.

Understanding ‘buy now, pay later’ services

The growing popularity of ‘buy now, pay later’ services such as Afterpay, Openpay and zipPay means it pays to help your teen understand how they work, and what the risks are.

These services allow shoppers to buy a product, take it home and pay for it in instalments via an online ‘buy now, pay later’ account, which deducts your preferred debit or credit card. Added to that, while the buy now, pay later provider might not charge interest on your purchase, you may still have to pay interest to your credit card provider if you don’t pay the full amount owing on your credit card by the due date.

Leading by example

While knowing the ins and outs of debt is important, one of the most powerful ways to help your kids develop healthy money habits is to lead by example. Our ideas about money are formed in our childhood, so if your kids see you living with healthy financial habits, they’re more likely to form those habits themselves.

Source: AMP

October 26, 2002

admin In Business, Economy, Family, Financial Planning, Latest Updates, Money, Self Managed Superannuation, Superannuation, Tax, Wealth

FEDERAL BUDGET OCTOBER 22-23 ANALYSIS

For the second time in 2022, the government of the day has delivered a Federal Budget. Last night’s Budget was the first delivered by the new Labor government that was elected in May 2022.
Given the present state of the economy post-COVID, a worsening economic position due to inflation and increased global instability, rising interest rates and cost of living pressures, the Budget was conservative by nature. There were no big surprises… Download our full analysis!

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Disclosure: This information is intended to provide general information only and has been prepared without considering any particular person’s objectives, financial situation and needs (‘your circumstances’). Before acting on such information, you should consider the appropriateness of the information regarding your circumstances.

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