Last year my colleague, Deloitte Private Partner Jacqui Clarke, was talking with industry colleague and managing director of Providence Wealth Advisory Group, Grant Patterson.
The conversation turned to a discussion on ‘kid’s financial fitness’, which resulted in a presentation called Financial Fitness For your Kids. I thought the content was worth sharing here as financial literacy is an important life skill.
Financial Fitness For your Kids means giving really practical tips to kids and young adults. We see lots of people needing help, often after they’ve made the wrong choice without seeking guidance - some young people are often afraid to ask questions: how to buy your first property, whether you live in it or whether you rent it, for example.
One of the most powerful yet simple tips is explaining the concept of compound interest, which is really about the dollar today, what it can mean and how it works - just the simple financial principles.
More often than not, younger people are saving for short term goals like overseas trips, so it’s important for them to understand that it would be wiser to have the money in a bank account that’s earning good interest rather than just in an everyday account.
If young people understand the power of compound interest that helps them to see what they can achieve by saving just a portion of their salary each month — demonstrating that if they put away just $10 or $100, or whatever they can manage, it is so much easier to have a smaller amount going in monthly than trying to save a large amount at the end of the year.
In developing the Financial Fitness For your Kids presentation, we canvassed perspectives from some of the younger Deloitte staff members: asking them for their tips on managing and saving money.
Many of them are just starting out, managing their expenses and having their own credit card for the first time and for some, moving out of home and paying rent, all of which can be quite a shock after the safety and comfort of living with parents.
A classic story was from a younger employee about car insurance who talked about ‘a mate of mine who did some research and ended up getting his insurance for a third of the price’.
The fact is there are some really great resources available online to simplify financial matters, such as Money Smart, as well as providing savings. So, what can young people really do to be financially fit?
Here’s a list compiled by Jacqui and other colleagues to consider - which you may like to discuss with your children. Some of these tips may seem obvious and a little simple, but in our experience simple is usually best, or at the very least it’s a good place to start.
1. Spend less than you earn.
2. Pay yourself first, see $1 earned as 90 cents and you will automatically start saving.
3. Treat tax as your biggest expense and understand how to reduce it (legally of course!).
4. Have a plan, Stan. If you fail to plan, you plan to fail.
5. Practice delayed gratification, put the credit card in the freezer.
6. If you use a credit card, pay it off before interest starts to accrue.
7. Use online research; there is ALWAYS a better price.
8. Ask for discounts and upgrades, ‘if you don’t ask the answer is always NO.’
9. Seek advice to complement your knowledge.
10. Invest regularly.
11. Protect your assets.
12. Get organised and BE organised.
Kate Hill is a partner at Deloitte Private, Western Sydney. Contact her at 02 9840 7049 or email khill@deloitte.com.au
