Money and Life
(Financial Planning Association of Australia)

A survey of 1100 high school students suggests many are confused about how credit cards work. Are new technologies making it harder for young people to understand what money management is all about? And what can we do about it?

Understanding what happens when you spend money on your credit card seems to be something of a blind spot for young people living in the 21stcentury. When asked how long it would take to pay off a $2,000 credit card debt, making minimum repayments only, more than half of 1100 high school students surveyed believed the debt would be settled within 3 years. Assuming an interest rate of 18%, it would actually take more than 15 years to clear the balance[1].

In today's world where tap-and-go technology and online shopping are the norm, the choice of ways to spend our money keep growing. So just how serious an issue is financial literacy for our kids and teens? We spoke to Kendall Flutey, co-founder of Banqer financial education software to get her take on the importance of financial education and what we can all be doing to help kids understand their responsibilities around money.

What are some of the new challenges young people are facing when it comes to taking control of their finances?

The way we're managing our finances in the 21st century is evolving, and fast. At the heart of these changes is the increasing intangibility of money as we move towards a cashless society. Although this is a really exciting innovation that can make it easier to keep track of money, it causes some issues for our youth. Spending digital currency just doesn't have the same psychological trigger that handing over a ten dollar note does it's a softer loss. It's that much harder to put the value of what you're buying in context a bottle of Moet seems equivalent to a bottle of milk when it's just the tap of a card away. So when young people are out in the world spending their money, we often see a big disconnect between actions and their financial consequences.

What signs are we seeing that young Aussies lack awareness of key financial concepts?

The issues we're seeing with financial literacy aren't new, but they're more widespread. From the early interactions we're having with 5,000 Aussie kids using our platform we're certainly seeing kids who don't comprehend the responsibilities that come with servicing debt. And we're seeing many children in our learning environment struggling to maintain positive cash flow. This kind of activity in kids (and adults too!) often comes with other negative financial behaviours, such as a lack of regular savings and/or a disregard for the future.

Thankfully, at a young age these behaviours can be changed more easily! By making kids aware of the consequences of their assumptions and actions, we can help them become more financial literate and responsible.

What do you think are some of things causing this lack of awareness? What can be done to change it?

It's important to remember that no real ownership is granted over the life skills that support good money management. Australia hasn't mandated these lessons in schools, so the burden mostly falls on parents. I think it's true to say that the majority of us earn our financial stripes by seeing what our parents do, and through our own trial and error.

For a busy parent, making time to talk about money may be something that's less important than other types of guidance and education. And for others, their own lack of financial capability can be detrimental as it gets passed along to the next generation. Financial illiteracy is shown to be a cyclical problem, entrenching inequality and often leading kids to adopt negative financial behaviours from a young age. Parents in this situation may not intend to model poor money management but when you're having a hard time keeping financially afloat yourself, teaching your kids to do the opposite is an unlikely outcome!

In order to change this and ensure equal access to a standard level of financial literacy for every child in Australia, we need to find a new way to deliver a robust financial education, at least from an academic perspective. I believe the place for financial lessons to be learnt is in our schools. Parents still play a valuable role but just as with other educational subjects, school makes the most sense as the place to be taught this important life skill.

What are the real world risks for young people with limited exposure to the basics of personal finance?

Personal finances are often a balancing act. Education plays a crucial role in getting the balance right between income and expenses in order to achieve a surplus. In the last decade or so we're seeing a powerful force tipping the scales: hyper-consumerism. This has a profound impact on our kids and teens who are being targeted by increasingly sophisticated marketing tools and techniques, to the point where it's hard to tell the difference between online advertising and an authentic content post.

At the same time, we've seen financial education standards falling amongst our youth, which only makes things worse. This corresponds to a higher risk of our next generation living with debt, permanently. If you're determined to keep buying and don't have the financial savvy to understand the consequences of these decisions it can shape your entire financial future.

What can parents and schools do to support kids towards a more responsible approach to managing their money?

I believe parents and schools both have a role to play here. Parents are better positioned to speak candidly about past and present monetary experiences, oversee engagement with real financial products and services, and foster a safe environment for kids to experience their 'financial firsts'. Schools, on the other hand, can really reinforce the fact that financially focused conversations are an acceptable and normal part of life and education.

School should also act as the sandbox environment, a place where kids can make monetary mistakes, understand the consequences and learn from their experience. Regardless of the tool, resource, or online platform they choose for these activities, I feel all schools should incorporate practice of these vital life skills into their curriculum.

The FPA and Banqer are working in partnership to boost financial literacy in our schools. Looking for ways to help kids learn some positive financial habits? Find out more about money lessons new and old for your children.

[1] ABC News, Cashless kids: Is tap-and-go technology promoting financial illiteracy? Kathy McLeish, 17 August 2017. http://www.abc.net.au/news/2017-08-17/cashless-kids-what-is-tap-and-go-doing-to-the-younger-generation/8812168

(YourLoanHub)

As a home owner or property investor, you may have heard the term 'overcapitalising'. But what exactly is it and why is it considered bad?

While adding a new deck or kitchen can increase the value and enjoyment of your property, overcapitalising can end up costing you more than you planned. Here's a closer look at what overcapitalisation is, why it's bad, and how you can avoid it and still increase the value of your property.

What is overcapitalising?

Simply put, overcapitalisation is when the cost of a home improvement is more than the value it adds to your property.

For example, if you buy a property for $500,000 and spend $100,000 on a new outdoor kitchen area with timber decking and fancy landscaping, it doesn't automatically increase the property's value to $600,000. If similar properties in your neighbourhood are selling for a maximum of $525,000, your eye-popping improvements are unlikely to increase the selling price beyond this meaning you have overcapitalised.

Why should overcapitalisation be avoided?

Aussies love investing in their homes. However, keep in mind that while certain renovations can increase the value of your home, there is an upper limit on what properties are worth at any given time. If you find yourself in a situation where you have to sell an overcapitalised property on short notice, you could find yourself losing out on your investment.

Increase the value of your property without overcapitalising

While overcapitalising is never a good idea, there's no question that the right renovations can significantly add value to a property. Some areas where home improvements can make a big difference include:

• new curtains or blinds
• a fresh coat of paint inside and out
• updating light fittings with modern fixtures
• renovating an old kitchen or bathroom
• refinishing floors and replacing carpets
• adding a carport or garage.

When it comes to renovations, the key is to increase the kerb appeal without exceeding your budget. Consider your neighbourhood and the types of features that buyers or renters are likely to be looking for, and be willing to set your personal preferences aside. While you may enjoy having a beautifully landscaped yard or pool, the next person living in the house may not. In other words, it pays to be practical.

A good rule of thumb

In general terms, you'll probably avoid overcapitalising if you keep the cost of your renovations to less than 10% of the value of your home. The less you need to invest in your home to give it that wow factor, the more you can expect to get back when it's time to sell. And always keep a close eye on the sale price of similar properties in your area.

With many people continuing to depend on property investments to meet their financial goals, it's important to make sure you have the right information and tools on your side. Talk to your mortgage broker about how to unlock the full potential of your home or investment property with a renovation.

(Money and Life)

Are all types of advice about financial products in your best interests? According to a recent ASIC report, the 'general' and 'personal' labels make it hard to know what type of financial advice you're getting.

Thanks to a new research report from ASIC, we may be seeing a much needed change in how different types of financial advice are understood by consumers. For many years, anyone working in the financial services industry has been required to describe advice services as 'general advice' or 'personal financial advice'.

But according to the ASIC findings, these terms are confusing to say the least. Their research shows that while 53% of customers could correctly identify general advice, only 19% could identify personal advice.

What's the difference?

As well as signalling the need for clearer communication on different types of advice, the research also throws up even bigger warnings concerning customer expectations of advice they're receiving.

So what are the differences between these two advice categories?

General advice does not take personal financial circumstances into account and you must be provided with a warning to this effect. So when recommending a product or service under a general advice arrangement, a financial services provider is not required by law to make a recommendation that best serves your interests.

Personal advice on the other hand must be based on a careful review of your financial position and goals and consider your best interests at all times. There are in place to make sure personal advice meets these requirements. These same regulations don't apply to general advice.

What needs to change

ASIC's Mind the Gap report highlights just how alarming customer confusion about different types of advice is. When acting on general advice, they might expect to benefit from consumer protections that simply don't apply.

"This disturbing gap in understanding whether the advice they are getting is personal or not means many consumers are under the false premise their interests are being prioritised, when no such protection exists," said ASIC Deputy Chair, Karen Chester.

The report also notes the increasing number of complex financial products provided under a general advice arrangement, leading to greater potential for customers to make choices that put their finances at risk. "ASIC is seeing increased sales of complex financial products under general advice models so not tailored to personal circumstances leaving many consumers, especially retirees, exposed to the potential risk of financial loss," says Chester.

This confusion about different types of advice was also flagged in a recent Productivity Commission report on competition in the financial services industry. In a submission to the Productivity Commission, the Financial Planning Association (FPA), included a number of recommendations designed to ensure clients can be clear about whether they're receiving the best advice for their circumstances.

The most important of these recommendations included:

• Only using the term 'advice' when the financial service and recommendations provided take into consideration personal circumstances.
• Renaming general advice to remove the confusion. The FPA suggested 'general product information' or 'financial product information' as alternative phrases.
• All licenses and regulations that currently apply to general advice should remain in place, regardless of the name change.
• The renamed 'general advice' services should continue to carry a clear warning that information provided is not financial advice.
• A product recommendation without understanding your goals, objectives and financial situation is not personal advice.

What to look for

There are all sorts of life stages and events we go through and the right financial advice can have a significant impact on how we experience these changes.

"Australians are looking for support with things like debt management, cash flow and budgeting," says Dante De Gori, CEO for the FPA. "It's essential that more people seek the help they need with these financial challenges because getting it right can set them up for a more secure future."

That's why it's so important to understand the difference between personal financial advice and general advice. A product or service recommended in a general advice context might seem to be a good option for your situation. But without knowing what the alternatives are, you may not be making the choice that's in your best interests, now and in the longer term.

So how do you know what is and isn't personal financial advice? Here are a few guidelines to help you understand what to expect from a personal financial advice service:

• Personal financial advice can only be provided by an individual, not a financial institution.
• The person providing advice must be a qualified financial planner listed on the Financial Adviser Register. All FPA members are qualified financial planners and you can use the FPA Find a Planner search to find one near you.
• Personal financial advice will always include a Statement of Advice (SOA), with a number of recommendations tailored to your circumstances.

Want to make sure the financial advice you're getting is right for your situation? Here are five questions to ask a financial planner to make sure they're qualified to provide the advice you're looking for.

(Australian Associated Press)

WINNERS

Taxpayer - $158 billion of additional tax relief for those earning up to $126,000 a year

West Australians - Rules around $69 billion GST revenue distribution to the states have changed, with WA the main beneficiary

Older energy users - $285 million to help almost four million Australian pensioners and others cover their energy bills

Job Seekers - 80,000 new apprenticeships announced and extra 1.25 million jobs over the next five years

Small Business - Instant asset write-off increased to $30,000 and expanded to businesses with a turnover of up to $50 million

Sports Women - $150 million funding package for women's sport

Farmers - $6.3 billion in drought support and $3.3 billion for those affected by floods

The sick - $80 billion for better access to life-changing equipment, services and medicines

Schools - $300 billion for upgrades to libraries, classrooms and play equipment

LOSERS

Big Banks - $600 million boost for financial regulators ASIC and APRA to deal with banking royal commission fallout

Terrorists - $570 million boost for national security agencies and $328 million to fund prevention, response and recovery initiatives

Tax and welfare cheats - The Tax Office and other agencies to crack down on welfare cheats and tax dodging

Migrants - Migration cap to be reduced to 160,000 from 190,000

(Australian Associated Press)

ECONOMY

• Budget surplus forecast of $7.1 billion, the first in 12 years
• Surplus forecast rising to $11 billion In 2020-21 and then $17.8 billion in 2021-22 before dropping to $9.2 billion in 2022-23
• Goal of eliminating Commonwealth net debt by 2030 or sooner
• Economic growth as measured by GDP to rise to 2.75 per cent
• Unemployment rate steady at 5.0 per cent
• Inflation as measured by CPI to be 2.25 per cent

TAXATION

• $158 billion of additional tax relief for those earning up to $126,000 a year
• Up to $1,080 in savings for single income families and up to $2,160 for dual income families.
• Tax rate lowered from 32.5 per cent to 30 per cent from July 2024 for all taxpayers earning between $45,000 and $200,000

SMALL BUSINESS

• Tax rates cut to 25 per cent by 2021-22
• Increasing access to finance with a new $2 billion fund
• Instant asset write-off increased to $30,000 and expanded to businesses with turnover of up to $50 million
• Additional $60 million for Export Market Development Grants

REGULATION

• Additional support to the Tax Office to reduce tax cheats
• Additional support to financial regulators in the wake of the Banking Royal Commission

INFRASTRUCTURE

• Boosting infrastructure spending to $100 billion over the decade
• Increasing the Urban Congestion Fund four-fold from $1 billion to $4 billion including a $500 million Commuter Car Park Fund
• Providing $2 billion for fast-rail between Melbourne and Geelong as well as fast-rail corridors in other areas
• $2.2 billion for safer roads
• $1 billion to improve freight routes and access to ports
• $100 million for regional airports

THE BUSH

• $6.3 billion in drought support
• $3.3 billion for those affected by flood
• New North Queensland Livestock Industry Recovery Agency
• New $3.9 billion Emergency Response Fund for natural disaster recovery efforts

YOUNG WORKERS

• $525 million skills package
• 80,000 new apprenticeships
• Incentive payments to employers up to $8000 per placement
• New apprentices to receive a $2000 incentive payment
• $62 million to boost literacy, numeracy and digital skills
• Funding to increase participation for women and girls in STEM (science, technology, engineering and maths) industries

RESEARCH

• $9 billion for science, research and technology, including commercialisation
• $400 million for genomics research to unlock the secrets of DNA
• $160 million for research to improve the health of indigenous Australians

HEALTH

• $80 billion for more MRI machines, more life-changing medicines on the PBS, more funding for mental health, better access to GPs, hospitals and dental services
• Funding upgrades to regional hospitals, the first being in Townsville
• Establishing Australia's first comprehensive children's cancer centre in Sydney
• Helping to build a new Brain and Spinal Ward in South Australia
• $461 million for youth mental health and suicide prevention strategy
• $500 million for a Royal Commission into the mistreatment of people with disability

AGED

• $725 million for 10,000 new home care packages
• One-off Energy Assistance Payment for pensioners of $75 for singles and $125 for couples
• $84 million to enable carers to leave a loved one in safe hands and take a break

ENVIRONMENT

• $3.5 billion Climate Solutions Package, $2 billion of which will go to practical emission reduction activities, working with farmers and Indigenous communities
• $100 million Environment Restoration Fund to deliver large-scale environmental projects

SCHOOLS

• committing around $30 million to all schools for upgrades to libraries, classrooms and play equipment
• new scholarship program for over 1,000 students a year to study in regional Australia
• $453 million to extend pre-school education, enabling 350,000 children to receive 15 hours of quality early learning per week in the year before school

SECURITY

• $328 million to fund prevention, response and recovery initiatives
• $570 million for the Federal Police and ASIO
• Additional $680 million to support service men and women deployed abroad