YOUR KIDS – THEIR FUTURE
Simple & realistic strategies for saving
Your children’s education, financial future, health and happiness are probably the most important issues you will ever deal with as a parent.
As a parent, I know I want the best for my kids and I never want them to have to struggle financially through their lives. This probably comes via the experience I had with money as a kid.
Some things I have learned since becoming a financial expert and will most likely apply to my kids:
- My kids probably won’t get taught how to manage money at school. That education is my responsibility. I have two young children at primary school. My children do school banking every week and they are in the minority in their classes.
- There are few budgeting skills offered at primary or high school. The only presence is from the the big 4 banks that are sponsoring various programs. This is for the benefit of our kids of course!
- If I have poor track record of saving, then my kids will struggle with saving too.
- If I spend everything I earn and always struggle with money – then there is a high probability my kids will do the same.
Learning to manage money is skill that is developed over time. If you did not have good teachers or mentors in this area yourself, then it will be harder to teach your kids good money habits.
With some sound money principals and some good discipline to put some money away for their future you can have many more choices and most importantly have the peace of mind your kids financial futures are going to be better managed.
There is no right time to start a plan. The most important thing you can do is “Start a plan as soon as you can”
So what can we do to help our kids financially? Six strategies to consider:
- A regular savings plan for your kids.
- Teach your kids how to budget
- Financially reward your kids for their contribution to the home
- Buy your kids some shares
- Invest some capital in a unit trust and reinvest the earnings
- Offer a savings incentive and match what they save
Where will the money come from? / How will we fund it? / How long do we have to do this for?
Here are a few ideas of where to find that extra cash.
One less morning Latte or Cappuccino
Assume one a day, six days a week at $3.80 ea
YOU HAVE SAVED $1,186.00 per year
One less takeaway meal (which is probably healthier for you anyway)
Assume one a week at a cost of $30.00
YOU HAVE SAVED $1,560 per year
If you smoke (you are limiting the time your kids will have you around)
Assumption: You smoke 10 cigarettes a day, 30 cigarettes in a packet at $13.00 per packet
Quit smoking and…..
YOU HAVE SAVED $1,582.00 per year
There are savings to be found in many areas. Be creative!
STRATEGIES IN DETAIL
| Assumptions | Option 1 | Option 2 | Option 3 | Option 4 |
| Starting Capital | $1,000 | $0 | $0 | $0 |
| Time invested in years | 10 | 10 | 10 | 10 |
| All earnings reinvested | Yes | Yes | Yes | Yes |
| Interest Compounded annually | 8% | 8% | 8% | 8% |
| Regular monthly amount | None | $100 | $200 | $300 |
| Result achieved | $2,159 | $18,775 | $37,549 | $56,324 |
Calculator used ASIC Compound interest tool
Assumes annual amount paid at beginning of year
No fee or charges deducted
We all want it, work for it and think about it. Everyone uses money
Money lesson 1 – Teach your kids money is a “medium of exchange”
Money lesson 2 – Money is a good that acts as a medium of exchange in transactions.
Money lesson 3 – Spend less than you earn and invest the rest
Money lesson 4 – Pay yourself first, treat your regular savings like any other bill
Money lesson 5 – Let someone make you money from your money without you having to do anything
For regular bills and commitments
– Plan one month in advance and save 1/12 of what is needed annually every month.
– Put these funds aside in a separate account & pay everything via BPAY.
“Protect yourself from yourself” and don’t make your savings easily accessible
Teach your children that making money is a game – and encourage them to be good at it.
In other words, pay your kids for doing their part and teach them the value of money.
In essence they are earning their pocket money. You can start early and start with small amounts. 20 cents every time your kid takes out the recycling earns them $1.40 a week.
To a 7 year old $72 bucks a year is a fortune!
Be creative, be consistent and be fair. I promise you your kids will surprise you not only in how much they can save, but also in how much they learn about the value of money.
It does not have to be a large amount to begin with. 100 shares in any of the ASX200 listed companies would be more than enough.
Owning these shares will give your kids an active interest in their investment.
In time let your kids tell you which shares they want to buy with the money they have saved.
For example, if your child owns supermarket A shares, you may find that they lose interest in shopping at supermarket B pretty quickly. They will also be proud as punch when you visit supermarket A because as shareholders, they are actually part owners in the store!
Your kids will learn more than you realize by having a stake in a company.
The key here is to reinvest all the share earnings and find shares that offer a Dividend Reinvestment Program (DRP).
Your kids will be fascinated by the effects of compound returns over the years.
10 Year timeframe
| Assumptions | Option 1 | Option 2 | Option 3 | Option 4 |
| Starting Capital | $1,000 | $2,000 | $2,000 | $5,000 |
| Time invested in years | 10 | 10 | 10 | 10 |
| All earnings reinvested | Yes | Yes | Yes | Yes |
| Interest Compounded annually | 8% | 8% | 8% | 8% |
| Regular monthly amount | $100 | $100 | $200 | $300 |
| Result achieved | $12,500 | $13,700 | $24,900 | $39,900 |
15 Year timeframe
| Assumptions | Option 1 | Option 2 | Option 3 | Option 4 |
| Starting Capital | $1,000 | $2,000 | $2,000 | $5,000 |
| Time invested in years | 15 | 15 | 15 | 15 |
| All earnings reinvested | Yes | Yes | Yes | Yes |
| Interest Compounded annually | 8% | 8% | 8% | 8% |
| Regular monthly amount | $100 | $100 | $200 | $300 |
| Result achieved | $18,000 | $19,400 | $36,100 | $40,200 |
Assumptions:
Invested in Growth option
Management costs 2%
Contribution fees 2%
Calculator used ASIC FIDO Managed Funds
Get creative and use some entitlements that are already available.
Assume your kids are at least 15 years old, have started working part time and earning enough to pay income tax. Tell your child that you will match them dollar for dollar up to $500 if they put the money into their superannuation.
Between the two of you, make a Non-Concessional contribution of $1,000 in the financial year. The Government will give you $1,000 for free for doing this. That’s right, $1,000 via their Co-contribution program for 2011/2012.
- If you only did this for 3 years whilst your child was still studying,
- Invested the funds in a growth option which earned them 8% after fees and charges,
- And left the money there until they reached retirement…
Their accumulated super would be worth around $326,000
It cost you and your child $10 each per week for 3 years. Could you afford that?
There are many strategies that Highland Financial can discuss with you and we can construct a customized plan that is tailored to your personal situation.
Even if you don’t call us, we hope you use this information to make a difference in your children’s lives.
This is your opportunity to be one of those clever parents that started early and taught their kids important life skills.
As a parent, my kids are the most important people in my world.
If you would like to know more, please click on the Contact Us link provided.
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