How do I help my children?

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9 April 2015

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We hear lots of news of how hard it is to get into property these days for those starting their career.  As a parent myself I know I want my children to be financially secure and have a successful future that doesn’t see them struggle.

The truth is that there are a variety of ways but I’ll get to those in a moment.  When thinking about this topic I couldn’t help consider my own children and how in my childhood the way money was, or more correctly, wasn’t a topic for discussion when I was growing up.  Quite simply, the thinking was that we shouldn’t talk about money because the perception was that it was rude.  Looking back, and having parents that struggled financially to raise their boys, it may have been that my parents financial knowledge meant that they weren’t sure how to have this discussion.  Or perhaps they didn’t want their children know how tight things were and cause us unnecessary worry.  Irrespective of this, I chose a different path and was determined not to have the same kind of struggles.  I’ve always preferred reading non-fiction, and devoured anything related to finance, property, shares, economy and opinion pieces that I could get my hands on.  Whilst some of the material I covered was clearly of better quality than others, in time I worked out my risk profile but more importantly, I understood that I needed to invest to have the kind of future I wanted and the sooner I started, the faster I would achieve my goals.

How’s this related to my children?  Even though they are still quite young, I communicate with them about money and I let them know that any question they have is allowed.  They understand that money won’t make them happy on it’s own but they also understand that not having enough money can make you unhappy.  I explain that finance and having enough money gives you the freedom of choice and potentially allows them do what they want, when they want.  Of course, I often have to frame my information in ways that are different so they can understand or I might give a very high level explanation so they don’t get bored by the detail but they get the important stuff.  They know that my business is about helping others achieve their goals, save money on their home loans and making sure my clients receive the best structure and advice to be successful as quickly and safely as possible.  The children have a basic concept of what it means to have a mortgage, what it means to rent vs own and that some people (investors) help provide places for others to rent by investing in property.  I’ve recently started exploring the concept of shares with my eldest but more than anything they understand that saving and saving early is the best foundation and habits they can have.  Whilst still a relatively modest amount, my 8 year old has more savings than the majority of adults walking around.  I’m very proud at how excited they get at saving and how well they’ve done with it so far.

As a general rule, to successfully get into your first property, you need 5% of the purchase value in genuine savings plus costs.  Costs will include items like stamp duty, conveyancing fees, etc.  That 5% can be a daunting figure when you realise that on a home worth $500,000, 5% is $25,000 and the stamp duty on an existing home in Victoria is $10,985 if it’s your first purchase or $21,970 if it’s not (these figures are obtained from the State Revenue Office and were current at the time of this article.  Please note that these figures can change as the State Revenue Office changes concessions or calculations).  Saving that kind of money can seem like scaling a mountain for those in their teens or early twenties but I’ve seen people do it and I’ve seen how they fly ahead of the pack when they’re old enough to start taking action.

My advice; even if you’re not in your teens or twenties, it’s never too late to start saving and the best time to start is now.  Set up an online savings account with the best interest rate you can find.  Talk to your payroll or HR officer and have your pay split so that amount goes straight into that savings account without it ever hitting your everyday account and risk getting spent.  If you’re wondering how much to start with, 10% of your gross pay is a good amount to set aside without creating undue hardship on yourself.  Within a very short period of time, you won’t even notice that 10% is not in your everyday account.  If you or you’re child is living at home and someone else is picking up the living costs, I’d suggest that much more than 10% is achievable and it helps create excitement when you see that balance grow all the faster.

If you’re comfortable and have the means to do so, you can gift children money to kick start their savings and contribute to their deposit.  But if you’re not in position or not inclined to gift money, you don’t necessarily need to gift a large lump sum.  Many lenders allow people to be guarantors for others (most commonly children) provided you have sufficient equity in your own home to do so, even if you still have a mortgage of your own.  Make sure you get excellent advice and understand the implications of being a guarantor before you go down this path.

If you’re not sure how to have these conversations, give me a call or send me an email – I’m more than happy to share my experience and help you with an approach that works for you and yours.

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Jeff Suter

Managing Director at Dark Horse Financial
Jeff is a long term property investor and provides clients with both residential and commercial finance strategy for a living.

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