Financial Planning Newsletter


This edition of Exchange encourages clients to speak with their children about being prepared for the future and provides some strategies to deal with changing circumstances.

From one generation to the next, Matt Collins and his son, Tim Collins have written the following articles on how Millennials can safeguard themselves against the possibility of a changing economic environment.

Are our Millennials Prepared?

By Matt Collins

Australia’s last recession was in June 1991. My son Tim, who is now a fully qualified and experienced 28-year-old Financial Adviser, was not even two years old at the time, and I can still remember him toddling around and trying out his first words.

Then, official interest rates had just dropped from 17.5% to 12% and unemployment was at 9.5% on its way to 10.85%.

Now, and in much of Tim’s adult life, interest rates have remained stubbornly low at around 4.2%, unemployment sits at 5% and property has grown on average 10.38% per annum. In fact, we recently broke the record for the longest period without a recession in history.

All that sounds like pretty good news. However, it also means that anyone under the age of about 42 has never been employed, or had to seek employment, during a period of extreme difficulty.

Interest rates are at all-time lows. We have been at what is considered full employment for many years. School leavers have so much choice when it comes to employment that they jump from one job to another with little thought given to how they might be treated as the newest team member if an employer was forced to cut costs and reduce staff.

The question is: Is a recession due? If we do fall into a period of negative economic growth, is our workforce prepared for how life would change and the resultant impact on their families?

The average house price in Sydney is now a staggering $1.1 million. If we assume a 20% deposit and stamp duty being borrowed, the average mortgage for a new entrant to the market might be around $900,000. Many couples rely on two incomes to support their debt and their lifestyle. That situation could potentially create an enormous amount of stress in a recession.

There are two types of people in the world. Type one, saves first and spends what is left and, type two, spends first and saves what is left (if anything). After approximately 27 years of a reasonable economic climate, people have been conditioned to want/expect immediate gratification. If they want something and don’t have the cash available to fund the purchase, they simply borrow the money to acquire it. With interest rates so low and employment relatively secure, this hasn’t caused too many people too many problems. So, we have a generation of people who spend first and never save.

We would suggest there may be a real test of character coming. If interest rates rise and/or property prices fall, will our young people be equipped to cope with that type of environment?

Financial Decisions has a team of young advisers who can coach young people financially. They can help them develop good habits and be disciplined so that should the worst happen, they are better equipped to deal with changing circumstances and have the appropriate backup plan, including the financial security of assets and insurances.

Please call us today if you know someone that would benefit from working with an adviser. This includes your adult children who could be eyeing off your spare room should the above become a reality!

Strategies for Millennials

By Tim Collins

Growing up with both a father and grandfather in the finance industry, I have been lucky enough to get first hand advice on the benefits of not only saving money, but having the strategies to reach my goals.

Millennials like all people have goals and nearly all goals involve money. These goals will change and evolve as time passes. There are a multitude of investment options available and these may suit different people at different times.

In a simple summary, you could consider:

  • Cash
  • Fixed deposits/high interest savings accounts.
  • Shares
  • Managed funds/ ETFs
  • Infrastructure
  • Property

When we are at school, we might start working nights or weekends for some extra spending money. The goal of most people during the school phase is to purchase an asset like a car or pay for a holiday/gap year before going into full-time work or university.

We believe that while you’re under 18, the ideal investment is a high interest cash account, which provides access to the funds if needed and generates a slightly higher return on the investment. We suggest having two bank accounts – one for everyday expenses and one for savings.

When you finish school, your goals might start to become “bigger” even though it’s likely your income hasn’t changed significantly as you will be at university or working on apprentice wages. It is important to first put aside a predetermined amount of money when you receive each pay cheque and then spend what is left over.

When you are over 18, you can look at growth investments. Your strategy will evolve and become more complex. We can now set goals for the short, medium and long term.

An example would be to set up three accounts:

  1. a cash account for every day expenses;
  2. a savings account for short-term goals; and
  3. an investment account for long-term goals.

We use the same strategy but every couple of months as the money builds up in the savings account, you transfer a lump sum into the investment account, which is invested in growth assets.

The next big issue for Millennials is what to do with their superannuation? Most Millennials underestimate the importance of superannuation because the need to use it is so far away and the government keeps changing the rules. However, they take 9.5% of everything that you earn so it is important to get this right.

With small balances the key strategies are:

Consolidating your super: Many young people have multiple accounts so they pay multiple sets of fees and insurance premiums.

Choose a fund with low costs while your balance grows: There is no point having a sophisticated fund that allows exotic investments if your balance is $20,000 because you will not be able to take advantage of these investments at this level.

Review your insurance: Do you have the appropriate cover for your individual circumstances?

Don’t be too defensive: Ask a family member who is over 60 what they paid for their first house? It’s likely to be more than they paid for their last car. This is the impact of inflation. If you are in cash/defensive assets over the next 40 years, you may end up a very long way behind as inflation erodes your buying power.

One thing that many people don’t consider is that having a HECS debt impacts your ability to borrow money if you want to buy a home. Therefore, it is always in your best interest to pay this debt off as soon as practicably possible.

The best advice to all Millennials is create healthy financial habits – save, save, save; stick to a budget; pay your credit card in full every month; know your credit score; and don’t have toxic debts on extravagant depreciating assets. In other words, if you don’t have the money, don’t buy it!  Finally, be prepared financially if the economic environment should change.

Please call us on (02) 9997 4647 if you have any questions or would like to speak with an adviser.

Disclaimer: This publication has been compiled by Financial Decisions (AFSL/ACL Number 341678). Past performance is not a reliable indicator of future performance. While every effort has been taken to ensure that the assumptions on which the outlooks given in this publication are based on reasonable data, the outlooks may be based on incorrect assumptions or may not take into account known or unknown risk and uncertainties. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information and any advice in this publication do not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it. While the information contained in this publication is based on information obtained from sources believed to be reliable, it has not been independently verified. To the maximum extent permitted by law: (a) no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up-to-date or fit for any purpose; and (b) Financial Decisions nor its employees are in any way liable to you (including for negligence) in respect of any reliance upon such information or advice. March 2018

Contact: Financial Decisions PO Box 484 Mona Vale NSW 1660, T 02 9997 4647, F 02 9997 7407