We need to talk about finance

We need to talk about finance
 
I love emojis. Admittedly I was a latecomer to the emoji party I (to my shame) thought I was above them. I was then convinced by a clever friend that they’re like modern hieroglyphics and a valid form of communication. I’m not going to argue with that.

What do emojis have to do with finance? Aside from my personal desire to see the finance news reported in a variety of smiley, joyous or sad faces, not a great deal… but this blog is about why we need to talk about finance more.

I think the emoji that best describes how most people feel about talking about money and finances is this adorable little guy:

monkey emoji

This little dude says it all:

“I don’t wanna look at it”
“I don’t wanna hear about it
“I don’t wanna know about all the debt we’re in”
“Please just be quiet now and let me get back to Netflix”.
“Okay thank you, be quiet”

Research shows that people are more likely to seek out advice from each other on how to get fit, raise children and choosing where to live than they are about their finances. Understandably, talking money can be awkward, however there’s a difference between discussing financial issues and taking advice. Perhaps if we were a little less sensitive about talking about how finance works it would be less taboo and we could learn from each other?

It’s definitely a good idea not to invest your life savings in a forestry scheme recommended by your cousin’s second best BFF. However talking about finances in a is an important thing to do. Research also shows that discussing finances early on in life is one of the habits of very wealthy families.

Personal finance education in school

We have a massive problem in this country that basic personal finance is not taught in schools. Personal finance education is surely paramount in teaching young (and old) consumer goods hungry people the basics of credit, interest and spending less than you earn?! Some argue school curriculum is overcrowded and it’s the parent’s job.

The huge elephant in the room question is:

How can we expect parents to teach their kids about debt and finance if they don’t understand it themselves?

The risk is that we develop a head in the sand complex (or like my little monkey emoji) we cover our ears and try not to listen.

So here’s a (non scientific) list of some of the financial things we think people should be talking about more:

Credit card debt

Australians owe around $32 billion in credit card debt, that’s about $4,300 per card holder, the average cardholder pays $700 per year in interest per year if their interest rate is between 15 to 20%. That’s $700 a year – gone!

It’s a huge chunk of money we’re literally handing over to the banks. A lot of people get into credit card debt, having a maxed out credit card hanging over your head can be emotionally crippling.

Talking more about credit cards will help people (particularly young people) better understand they are best used only as a short-term revolving loan for convenience. They shouldn’t be seen as a way to finance the things you might want now but can’t afford.

Private school

The ability to send your children to private school is something many families aspire to. However according to private school lender Edstart, only 50% of families have the disposable income available to pay private school fees because they fail to plan for it sufficiently in advance.

They say there is an overwhelming “head in the sand” mentality when it comes to planning for how to fund private school through either investments or borrowings. It means 14% of families end up relying on credit card debt to pay for school fees! With a little foresight and planning between parents, private school could be something more parents could afford if that’s what they chose.

Superannuation

Our first super fund is something that seems to magically appear when you get an after-school job at Woolies. Our employers dutifully pop us in a default super fund and many of us pay little attention to it for the next 40 years or so.

However, as our Fat Cat Funds report shows that if you’re one of the people stuck in a Fat Cat Fund you’re probably paying enormous fees of over $250,000 over your working life.

Impact of fat cat fund fees by profession

Fees compound, so over 40 odd years you could lose over a quarter million dollars. Think about it 🙂

Investing

Investing early in life and investing regularly is smart. Diversifying your investments across asset classes is even smarter.

A lot of Australians are already investing which is great, however too many think diversifying investment means buying a few different Australian bank shares or Telstra – safe bet right? No, big time wrong! If all your investments are focused on big Australian companies you’re in a high risk strategy.

It’s far less risky to spread investments across different asset classes and countries such as global shares, and bonds. Stockspot invests on behalf of its clients into a variety of ETFs that track different market indexes such as Australian shares, emerging market shares and bonds (to name a few) to control for risk and ensure the best opportunity for long term returns

Buying a home

Okay this is controversial – it’s the great Australian dream to own your own home.

Unfortunately for the majority of Australians this will not be a reality according the Household, Income and Labour Dynamics in Australia (HILDA) report that came out in May 2016. Just over half (51.7%) of Australians own a home, down from 57% in 2002. They say it’s likely in the next few years less than half of adults will be home owners.

We need to talk about if it’s worth putting ourselves into huge amounts of debt for 20 to 30 years. Attitudes to renting vs buying need to change in Australia and will only happen if we take the conversation out of emotional and historic arguments and consider if buying a home you can’t really afford is a positive life choice.

We’ve done the sums on renting vs buying a home over the long term. We’ve found there’s not a great difference between renting and buying. If renters are disciplined about saving and investing both renters and homeowners come out about even.

Start a conversation…

It’s time we start talking more openly about finance, the more something is talked about openly the less scary it becomes. Talking more about finance will also improve our national financial literacy and help Australians avoid the billions of dollars in unnecessary fees we pay every year.

Be less:
monkey emoji

Be more:
girl emoji

 

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Main banner: Mamoritai via Flickr

Lauren Franze

Communications and PR Manager