Improving your kid's financial security part 1

Nov 2023

What can parents and parents-to-be do to improve their kids' financial wellbeing? Here financial advisers Erin Truscott of Direct Wealth and Regina Taarnby of Morgans share important lessons about savings, insurance and investments.

When planning for your first baby, what insurance options should you consider?

Erin Truscott: When you find out you are having your first baby it’s such a big moment and there is certainly plenty to think about. It's important to consider all the insurance options available and then make a plan that suits the family.

Life, total and permanent disability, income protection and trauma insurances will all form a part of your strategy to protect yourself moving forward, and give you the peace of mind that if something goes wrong, you have put the right measures in place to protect your family.

When you make your plan you will need to think about the amounts of cover you need and it's important to think about the potential long-term costs you'll need to cover like school fees.

If you weren't here anymore and your children were left with a guardian for life, what would this look like and how much might it cost each year? Legacy is also an important consideration.You’re not thinking about yourself anymore.

Aside from insurance, what other investments should you consider when you're planning to have children?

Regina Taarnby: Just getting set up to have a baby means you'll need a fair amount of savings to cover everything such as car seats, cots and clothes. So it's worth saving well ahead.

If you’re in the position to make an investment for your baby, then it's important to talk with your partner and a financial adviser about what you want to provide for your children, including the kind of schooling they are going to have, sports and any extracurricular activities and longer term goals for your kids.

It is particularly important to plan if you are moving from two incomes to one when bub is born. You are best to be pro-active about adjusting your financial plans, particularly filling your household income gap and whether you need to invest more into your cash savings to allow for this time away from work.

What age milestones are best for introducing concepts of pocket money, savings and investments to kids?

Regina: You can start to introduce the concept of 'currency' quite young. A great place to start would be a sticker chart around the age of three for very basic chores.

As your children get older, you can move into rewards, such as extra time at the park, and eventually paying them pocket money. Four great concepts to introduce around age 7-9 years, are:

  1. Save
  2. Spend
  3. Invest
  4. Donate.

Let your kids make their own decisions about whether they spend or save their pocket money.

It’s fascinating to watch them learn about the consequences of their choices with money.

I believe they need to experience the feeling of not having anything left for other things if they spend all their money in one go.

Support them through their choices and let them make decisions.

Don’t get too caught up in them being ‘perfect’ with money choices, it's human nature to learn from mistakes and they will make better choices the more confident they become.

When your kids become teenagers and start earning their own money, what are some more mature savings and investment habits worth adopting?

Erin : There are a few really simple things that we can teach our kids to help give them a great start once they start earning their own money, saving and dipping their toes into investment water.

Teaching them how compound earnings work is a big one. The magic of compounding allows them to see how little bits regularly can turn into a whole lot later.

The art of spending less than you earn is also a great lesson. Show them how to make a spending’s plan and then you can have really great conversations about what they are able to save and how they might like to do this.

The third concept is educating them about super and how this works, and that it’s better to have one super fund, rather than several, as you move through life.

I see a lot of young people just go with the default fund offered by their employer every time they start a new job, and they end up with small investments spread across multiple funds. Having one fund is such a big thing and can make a huge difference over time.

What’s a good age to begin teaching young people the concept of diversifying investments?

Erin: When they get their first job, because that’s when they get their own income and start saving super. Help your teens understand how their money is invested in super, and why they don't want all their eggs in one basket. The beautiful thing about super is that it steadily builds a big portion of people's life savings, so it's important to help young people connect with the idea of saving for their future, and making sure they are very clear that this is their money.

What are some of the advantages of savings accounts and property ?


1. Savings accounts are good for things you are saving for in the short term, because you’re not taking any risks If you can't stand to lose any money, then it's the best way to go. Due to inflation though, the value of your dollar today will go backwards over time.

Long term, you could get much better outcomes with other kinds of investments, and while that means you take a little more risk, they can offer good opportunities for growth.

2. Property is a good idea if you plan to live in it now or some time in the future should you need to, and you can pay it down over time.

Property is not my area of expertise, however to me it's a numbers game, and you should always look at the true cost of property to ensure it’s a sound investment. If you are doing it to get returns over time then another really great option is to invest in shares or managed funds, as these can also do really well in the long term, and you don’t need to outlay such a large sum of money to start.

If you do want to invest in property, you need to cope with the fact it’s a slow burn. You also need to do a stress test to ensure you can cope if things like interest rates change or you have other expenses that come up. I always educate my younger clients about the risks of putting all their eggs in one basket and making sure they get the right advice before they make decisions around investing.

What are some of the advantages of mainstream investment options such as shares and investment funds?


1. Investing our money is primarily to earn income and growth in return.

Investing helps us stay ahead of inflation, fund our goals and build our wealth. Keeping your savings in cash is not going to expedite your wealth very quickly, particularly in today's cash markets with low interest rates.

2. Shares are a great first step into investing. You can put as little as $500 into a parcel of shares with a company and watch and learn as you go.

3. Managed Funds and Investment Bonds are another great way to invest. In this case you're investing your money with a fund manager who has pooled funds from other investors and is responsible for researching, analysing and making the investment decisions for you, with the aim to get you the best return. Investment Bonds can have favourable tax treatment if you are investing on your child’s behalf.

Shares and managed funds are both 'liquid' and can be sold quickly in the event you need to access the funds, unlike an investment property, for example.

Find an Adviser to help you plan for you and your family’s financial future.

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