Don’t Financially Doom your Children (they’ll thank you later!)
I started out like most people my age – I turned 18 and had a steady job so I got a personal loan and then a credit card. However, because my credit card was getting out of control (as my income was not meeting my expenses) I consolidated my debts into one big debt. And so the cycle began. By the time I was 22 years old I was $27,000 in debt, not to mention HECS. My income by that time covered my debt repayments, but there was no way I was going to get ahead of it, let alone save enough money for a first home deposit.
This scenario is all too common, and it means that more and more young adults are getting into unbeatable levels of debt. Their hopes of ever buying their own home in the future are diminished as a result of either bad credit ratings from uncontrolled debt or simply not being able to get ahead of themselves and save enough money for a deposit.
So why so we put so much preparation in the beginning into our children and their future? Why do we only plan for 20% of their life and put our head in the sand about the rest?
WHAT SHOULD YOU DO?
There are many ways we can address this issue. The obvious is to start early, although it’s never too late to start! There are various ways to start saving for your child’s “Future Fund” (if your child does not want to go to University, they can use this fund for their first home etc.).
One popular option is an Insurance Bond – don’t let the name fool you, without going into the nitty gritty of the product here, it is an investment vehicle. This type of investment can offer some advantages such as; tax benefits (especially if you’re on a high tax bracket), high returns (depending on the investment option you choose) and it is also a useful way for other family members such, as Grandparents, to setup savings for the child if there are any family issues.
Saving for your child’s future doesn’t have to be a sophisticated investment – an Online Savings account will do the trick, as will any Bank account which offers reasonable interest – reconsider linking it to your Internet Banking – you don’t want to be tempted to eat into the savings unless you absolutely have to. A great alternative to a savings account is your Mortgage Offset account (if you have one). This is a great way to save for their future AND reduce the amount of interest you’ll have to pay back to the Bank!
EDUCATE YOUR CHILDREN!
Aside from some basic topics around money and working, the majority of children don’t receive specific education in financial matters such as how debt really works, the impact of getting into debt, how to compare debt facilities and how to properly budget and manage their finances in adulthood. You can start at an early age by playing games like ‘Shop’ and Monopoly, so they understand the value of money. As they get older, this can progress to budgeting of pocket money and saving for goals, and eventually having adult conversations about debt facilities etc.
This is an issue that can determine the quality of life our kids have once they leave our care.