Do you ever wish you started seeing a financial adviser earlier in life? Then consider setting your kids on their own financial advice journey sooner rather than later.
As every parent knows, children need to learn from their own mistakes, but that shouldn’t be the case when it comes to their finances. In fact, young people can learn a lot from their parents when it comes to managing money – and this includes understanding the benefits of professional financial advice.
So if you have a child who’s ready to hurtle into adulthood, here’s how your financial adviser can help them make smart financial decisions from the get-go.
Learning to budget
Many young people find that money seems to just trickle through their fingers. In fact, 44% of people under 35 say they often buy things on impulse.1 Your financial adviser can help, by teaching your child how to approach their financial independence responsibly.
A careful and realistic budget is your child’s most valuable tool when it comes to staying on top of their cash flow. As the first step, your adviser can show them how to balance their earnings against their expenses like rent, bills and groceries.
That way, your child will know when they have money left over for the occasional splurge. They’ll also be able to see exactly how much they can spend on a night out without blowing the rest of the week’s budget.
Creating a savings plan
When kids are just starting out in the workforce and living life to the full, they’re often living from one paycheque to the next – which can make it hard to save for life’s necessities.
That’s where your financial adviser can play an important role, by explaining some basic savings strategies that could make a big difference in the long run.
For instance, just say your son or daughter wants to save for a car. By looking at their regular earnings and expenditure, your financial adviser can help them work out how much they can afford to put away each week or month. Your adviser can also offer guidance on different types of financial products, like high-interest savings accounts, to find out which one is right for your child.
For many young people, there’s a temptation to think of credit cards as free money. The result? They end up in a debt spiral that can take years or even decades to escape. That’s why it’s important for your children to learn to nip debt in the bud before it gets out of control.
Your financial adviser can help your child consolidate their debts – or at least prioritise them so they can focus on paying off the ones with the highest interest rates first.
With your adviser’s guidance, your child will also be able to put together an achievable repayment plan so they can avoid paying as much interest as possible. This will lay a strong foundation for your child to manage their finances successfully when they decide to take on an even bigger debt down the track, like a mortgage.
Looking to the future
When it comes to building a nest egg, time is our greatest asset. Chances are, retirement planning is probably the last thing on your child’s mind right now. But even though they’ll reap the benefits of compulsory employer super contributions throughout their working life, adding a little extra can go a long way towards funding a comfortable retirement.
With their specialised investment knowledge, your financial adviser can demonstrate how your child could benefit from salary sacrificing a small portion of their earnings into super. For example, if your 21 year old son or daughter earns $50,000 a year and salary sacrifices just $30 a week from their pre-tax income, they could end up with a $65,000 boost to their super by the time they retire.2
As with any long-term strategy, the sooner they start, the better. So talk to your adviser today about your children’s options for beginning their own financial advice journey.
1 ASIC, Australian Financial Attitudes and Behaviour Tracker, Wave 4: Sept 2015 – Feb 2016.
2 Calculated using ASIC’s MoneySmart Superannuation Calculator, based on a retirement age of 67. Assumes an investment return of 5.7% pa, administrative fees of $50 pa, investment fees of 0.5% pa and tax on earnings of 7% pa.