S1: Hello and welcome to It All Adds Up the podcast
S1: where we chat about money, how to get it, how
S1: to spend it, and how to invest it. I'm senior
S1: economics writer at the Sydney Morning Herald and The Age
S1: newspaper's Jess Irvine.
S2: And I'm money editor Dom Powell. And this week we're
S2: continuing our special series, focusing on real life budgets, money
S2: questions and how you're tackling the rising cost of living.
S1: Yes, And this week's question comes from one of our
S1: lovely listeners, Sam, who has sent us her budget and
S1: wants to know how she might be able to help
S1: her daughter achieve the great Aussie dream of home ownership.
S1: So let's have a listen to her question.
S3: Hi. Yes. And Tom. My name is Sam and I'm
S3: a 48 year old solo parent of one. I have
S3: a small mortgage and emergency fund and my super is
S3: tracking along nicely with property purchasing becoming increasingly difficult for
S3: young people to achieve. I've been giving some thought to
S3: what I can do to be in a financial position
S3: that if needed, I may be able to help my daughter,
S3: who is now 16 years old, into her own property
S3: in the next 10 to 15 years. I know this
S3: will look very different for every family, but it would
S3: be great to hear your thoughts on budgeting for things
S3: with a 10 to 15 year time frame. Thank you.
S2: Thanks for calling in, Sam. It's always good to hear
S2: parents thinking about, you know, trying to help their kids,
S2: you know, plan for the kids financial future, 10 to
S2: 15 years. Just that's a good long time frame. You'd
S2: think you'd be able to achieve quite a lot in
S2: that time.
S1: Yeah. You know, it's that old adage that little steps
S1: really do add up. And if you have a big
S1: enough time frame, you can, you know, put aside little
S1: amounts that really do add up. And I love Sam
S1: just as a person, but I love her budget that
S1: she has sent through. And if anyone can do this,
S1: if anyone can come up with a ten year plan,
S1: I know it's because she sent us her her budget
S1: spreadsheet where she uses the same color coordinated budget categories
S1: that I also use. It's a beautiful rainbow. And she's
S1: been you know, she's tracking her spending every month and
S1: adding that all up. And there is wiggle room in
S1: her budget. And, you know, she is she's on a
S1: good income and she's got a relatively small mortgage that
S1: she's incurring at the moment, which is about $650 a fortnight,
S1: which is hashtag goals for a mortgage. So and she's
S1: also doing great things like maxing out her super contributions
S1: to make the most out of the tax breaks. She's
S1: also started investing a little bit into buying ETFs, exchange
S1: traded funds, putting about $200 a week into that. So
S1: for Sam, it's a question of, you know, she's got
S1: good habits in place, she's regularly saving. And then that
S1: it's almost a moral question about how much do I,
S1: you know, save for myself versus what do I owe
S1: sort of in terms of help for my child in
S1: helping them get into homeownership. Because I know everyone's like
S1: not saying that's not the path to wealth, but I
S1: wonder if that's a little bit of defeatism creeping in
S1: because when something seems so unachievable, you think it's maybe not,
S1: but actually our tax system is structured so that, you know,
S1: the least tax you'll ever pay is on being able
S1: to purchase a primary residence and enjoy tax free gains
S1: on that. That is actually the system that is so
S1: preferential if you can get into home ownership. So it
S1: really is something worth looking at and a conversation that
S1: is worth having between parents and kids. And I'm trying
S1: to figure out myself, you know, my son, you know,
S1: what is the best way for me to also save
S1: to help him into home ownership in in the future? So, Sam,
S1: you know, it's a fantastic, fantastic question. And there are
S1: various strategies that we're going to we're going to pass
S1: a workshop now, aren't we doing.
S2: Yeah. And I think if you thinking over a 10
S2: to 15 year time frame, as we said, you know,
S2: that's a good long period. But also anything could happen
S2: in 10 to 15 years. Like right now we've got
S2: a big fall in house prices, but they are still
S2: sort of at, you know, quite a high level. You
S2: would hope you would think maybe that intent of 15
S2: years we might have some more sort of housing affordability
S2: policies in place. This is.
S1: Lowell. I've been writing about this for 10 to 15
S1: years and more, and we have still not ever fixed
S1: that problem. So I remain.
S2: I live I live in joyful hope. This is May
S2: being this is maybe optimistic, but I think it's still
S2: wise for for Sam to to plan for all eventualities
S2: considering the the sort of state of housing and the
S2: set of housing over the past 10 to 15 years.
S2: You're right. Yes. It probably looks like things are not
S2: going to really get a great deal better for the
S2: first homeowners amongst us. But anyway, how about we we
S2: look through some we'll talk about some some options that
S2: Sam might have in terms of, you know, being able
S2: to put some some more money away for their daughter.
S1: I think we can sort of split the discussion up
S1: to things that Sam can do herself and things that
S1: she can help her daughter to do in terms of
S1: doing her own savings. So, I mean, just in terms
S1: of what Sam could be doing herself. We're currently putting
S1: some extra money towards paying off the mortgage and also
S1: putting more money into super, which won't be accessible, you know,
S1: until a bit later on. Although if Sam is 48
S1: now and she will be about 60 early sixties when
S1: her daughter might be looking to purchase a property, But again,
S1: she might want to do sooner or later. One thing
S1: that is open to people at this stage and super
S1: always changes is that when you get to that 60
S1: or you meet one of the conditions of release, you're
S1: allowed to access all of your super. You can just
S1: currently take it all out in a lump sum and
S1: we are seeing some. You know, access the super. Then
S1: gift the money to the child as the deposit for
S1: the first home. And then you've saved, you know, during
S1: those 10 to 15 years in the low tax environment
S1: of super. And then you pull it all out at
S1: that stage and help your child. But that sort of
S1: shackles you to you know, you need to meet some
S1: of the conditions of release of super. You need to
S1: actually stop working. That's just a fancy little thing that
S1: could come into play. Or we're looking at saving the
S1: money outside of super and not sort of paying down
S1: the mortgage and trying to accumulate some sort of outside
S1: of super accessible nest egg, which you could do in
S1: cash or with such a long time horizon, we could
S1: be looking at the ETFs or the shares. Even if
S1: you're hoping for a bit of a turbocharged gain above
S1: cash flow, that's also hard to predict.
S2: Yes. And like if we're looking at Sam's budget, she
S2: has a number of sort of different future funds that
S2: she puts money into, including one for just discretionary purchases
S2: like holidays. And it looks like she puts about $400
S2: a week into those various sort of future fund. So,
S2: you know, even if you divvy that up a bit, right,
S2: you know, you split it off, you maybe, you know,
S2: make a third future fund called, you know, house or
S2: something like that and you funnel a bit of money
S2: into that over ten years, even if you putting in,
S2: you know, 200 bucks a week, that's, you know, 50
S2: to $100000 that you've saved. And that's just only if
S2: you put it in cash. So like, that's one option
S2: because considering yeah, ten years is a very long time away.
S2: Like you start now, you can save quite a lot
S2: of money in that in that period of time.
S1: Yes. So that's an option for Sam just to hold
S1: that in her name. Another option in terms of saving
S1: outside of super, you know, if her daughter is approaching
S1: sort of 18 and the age at which you're able
S1: to hold investments in your own account and be the
S1: owner of shares, maybe you're gifting, giving the money to
S1: your daughter who can then invested in her own name
S1: and then when she comes to pay tax, know, presumably
S1: her tax will be at a lower rate because she's
S1: a lower income earner. So, you know, whether you hold
S1: back the deposit and save it in your own name
S1: or if you're starting to gift, you know, money away there,
S1: there's rules around gifting if you're going to get the
S1: age pension. But, you know, if it's smaller amounts, you know,
S1: you might want to get advice. If it's if it's,
S1: you know, really complicated for you. But, you know, just
S1: that question of how do you start? I mean, and
S1: this is the other strategy. How do you start to
S1: encourage the child themselves to start saving up in their
S1: own name? Because I think, you know, it would be
S1: doing a disservice for kids if you just sort of say,
S1: here's a bunch of cash, although what a lovely problem
S1: to have. You also want to be instilling the good
S1: habits and encouraging the saving with the child as well.
S2: So if you can sit down with your with your
S2: daughter or your child and sort of talk about saving
S2: strategies with them, you know, putting it all in context
S2: of how crazy things are in the in the Australian
S2: housing market, I think it's a really good thing to do.
S2: And also like you can do things like co contributions, right,
S2: where you're you say to your child that you will
S2: put in, you know, you'll match every dollar they save,
S2: you set up a sort of a super long term
S2: can't touch it savings account. The banks often offer these
S2: savings accounts where you can you know put a bunch
S2: of cash in, but you're and you get a great
S2: interest rate. But if you take it out, you lose
S2: all of your interest rate, all that sort of stuff.
S2: So something like that for the long term and you
S2: match everything they put into that account. I think that's
S2: a great sort of strategy for, you know, encouraging good
S2: saving habits. And then, you know, over a ten year
S2: period that that can get quite significant.
S1: Kids need to know that, you know, you save for things.
S1: You get a certain amount of income, you can spend
S1: it on things and you can allocate your money towards
S1: your toys. Now, whatever they are, as they're getting older,
S1: the different sort of toys that you're interested in. But
S1: setting aside something for the future, I think that is
S1: such a valuable conversation and I think Sam's in a
S1: really good position to try and lead that conversation, although
S1: I would just caution don't don't make it to in
S1: your face, just gently, gently so that we're not just
S1: turning the kids off the topic at all of saving.
S2: Yeah. So obviously there are some other ways to help
S2: your children get into the housing market other than just
S2: giving them a big stack of cash. And I believe
S2: this is something you actually have experience with just in
S2: terms of going guarantor or having a parents go guarantor
S2: on your loan. What sort of advantages do we sort
S2: of get from that? Like what's, what's the pros and
S2: cons I suppose.
S1: Yeah. Look, so this is if you're saving largely in
S1: your own right as the child and you've got a deposit,
S1: but it's not at that full 20% and if we
S1: don't get to the 20% we're incurring the extra charge
S1: of lender's mortgage insurance which can add up to thousands
S1: of dollars. One way parents can help, you know, without
S1: stumping up cash, but help kids avoid having to pay
S1: that extra charge. At least, you know, lenders will lend
S1: to you with a 10% deposit in your own right. But,
S1: you know, if you're missing, say, the 10% to get
S1: to the 20%, parents can go guarantor on that. Amount.
S1: So you're not actually committing as the parent to go
S1: guarantor on the whole loan. But so say, for example,
S1: it's a $500,000 property. We haven't got the full $100,000
S1: as the 20% deposit. We've only got $50,000. You can
S1: go guarantor, which is to say that I promise I'll,
S1: I'll give you the bank. The missing $50,000. And you
S1: have to prove that you would be as the parent,
S1: that you've got the security to give. So the kid,
S1: you know, falls in a ditch, stops paying the mortgage.
S1: It's very sad scenario just outlined. For whatever reason, if
S1: the child can't pay the mortgage, the bank comes knocking
S1: on the door of the parent. And in the worst
S1: case scenario where, you know, they were selling the home
S1: and reclaiming the money, they would be saying to the parent,
S1: where's the 50 grand? And if the parent has the
S1: 50 grand to stump up. You know, because I've got
S1: it in cash, great. If not, they will be going
S1: after the parents house. So you are putting in most cases,
S1: putting security over your own home as well on the
S1: line in the case that the banks are foreclosing on
S1: your child or going up, having to go after you
S1: for the money. So it's not an insubstantial thing that
S1: you're doing. You have to probably trust your kids that
S1: they're going to keep paying the mortgage because it can
S1: rebound on you. That's the whole point. You're offering up
S1: the security of your home. There are consequences to it,
S1: but it is a way to save, you know, to
S1: to help at least a little bit, you know, if
S1: you're missing that full 20% deposit. So this is actually
S1: exactly what I did when I went to go get
S1: my loan. My parents stepped in and went guarantor on
S1: the missing deposit. I didn't have the full 20% and
S1: I was really worried about it. I was, you know,
S1: which is probably why they were so confident to do
S1: it for me. I was really worried about not being
S1: able to, you know, pay my mortgage and then getting
S1: them on the hook somehow. So as long as you
S1: have the open conversation, you know, talk to the lender,
S1: talk to the mortgage broker about what are the implications
S1: of going guarantor on the loan and making sure that
S1: you're comfortable, That is something that you can do to
S1: help if you don't have, you know, just the cash
S1: to give to your child, which lots of people will
S1: be in that situation.
S2: Absolutely. I mean, a lot of people, you know, their
S2: main asset is their home. Right. That that might be
S2: the only sort of, you know, significant asset they have.
S2: So this is a way for people who have, you know,
S2: at least that asset to be able to help their
S2: children get over that home ownership hurdle. Something else I
S2: did want to sort of talk about, which I think
S2: is worth mentioning when we're talking about this whole idea of,
S2: you know, helping your children. Purchase property is that it's
S2: all well and good to give your. You know to
S2: help your child and either go guarantor or to you know,
S2: give them some money or however you think you will
S2: do it. But there's this whole other like side of
S2: this that they also then have to be able to
S2: service the loan. Right. You can give them 100 grand,
S2: 200 grand, and they can buy a lovely house. But
S2: if they don't have the income to actually support paying
S2: that mortgage, then it's all for naught. And especially if
S2: you're going guarantor, because then there's an even higher chance that,
S2: you know, it could backfire on you as well. So
S2: I think that is something to think about as well.
S2: Like whilst obviously a lot of parents want their children
S2: to have a secure a house and income and all
S2: that sort of stuff, you do really have to think that,
S2: you know, can my child actually afford to live in a,
S2: you know, $1.2 million property in Sydney, you know, and
S2: pay a giant mortgage every week. Yeah.
S1: And kids will be, you know, when they will they'll
S1: be adults by that time when they're purchasing the property,
S1: they'll be assessed by the bank as to what they'll
S1: be able to afford. So, yeah, another thing to keep
S1: in mind, you know, one of the best gifts you
S1: can give your children, you know, in in addition to
S1: the budgeting skills. But is that advice around, you know,
S1: thinking about your career, dedicating yourself to your education, you know,
S1: helping kids steer themselves down a path so that they
S1: are heading towards a job where that, you know, they
S1: you know, and unfortunately, it is the case that, you know,
S1: the full time permanent positions where you can earn the
S1: steady income. It's much easier to borrow against those if
S1: your child is going down a path of self-employment or
S1: sporadic employment, it is harder to apply to the bank
S1: and get the loans that you need to get into
S1: the home ownership. So, I mean, you know, if your
S1: child wants to pursue a career that is more self-employed
S1: or self-directed, you know, I'm not saying don't do that,
S1: but just being mindful of preparing your kid for the
S1: future by, you know, securing that that good job that
S1: can be the anchor for them for not only home ownership,
S1: but the whole financial future. You know, that's just something
S1: that I'm mindful of. And if people don't have the
S1: resources to throw cash at their kids to buy a house,
S1: you can still help them and shepherd them in terms
S1: of what you teach them, in terms of the values of,
S1: you know, getting jobs and building your skills, you know,
S1: and that's another way to think about if you're thinking,
S1: I don't have any money, that I can actually give
S1: in cash to my child, you know, the skills that
S1: you give them, the support that you give to them
S1: and the nurturing that sort of enables them to go
S1: off into the world and get a good job that
S1: is valuable to and, you know, when it comes time
S1: to buy the property that is going to to be
S1: helping them and putting them in a good position.
S2: If you are a parent and similar to Sam and
S2: you're thinking about helping your child to afford a property
S2: one day in the future, yeah, maybe just either start
S2: putting some money aside now. Doesn't have to be much.
S2: Can be a little bit each month or each fortnight
S2: or each week, you know, possibly thinking about other options
S2: where you could, you know, maybe not just put it
S2: in cash, maybe you could put it in some sort of,
S2: you know, investment if you feel comfortable doing that and
S2: over a long enough timeframe, you know, that will definitely
S2: help you accumulate a decent sized deposit or at least
S2: a start to a deposit.
S1: Yeah. And including your child in the conversation, I don't
S1: know how young is too young to have the conversation
S1: about home ownership amongst all the other conversations she's supposed
S1: to have with kids, you know, the home ownership conversation about,
S1: you know, beginning to save for your first home deposit.
S1: I really think as teenagers, you can be starting to
S1: have that conversation about where do you want to live?
S1: You know, you did you know that, you know, tax
S1: advantage to to purchase your own property that that is
S1: a good, solid foundation for your future. How can we
S1: afford that? I'm willing to help you. I want you
S1: to also be involved. Show me you can save and
S1: I will. I'll match your savings. Having that conversation early.
S1: And then as things progressed, you know, talking to lenders
S1: and brokers about how you can actually specifically help if
S1: it's in terms of doing a guarantee and that sort
S1: of thing. So for Sam, you know, having that long
S1: term horizon, I think she's in a great position. She
S1: has it. She is saving. She is a saver. I'm
S1: sure that she's passing on some of those skills, even
S1: only by demonstration effect that her child knows that mum,
S1: you know, has a budget. Mom is saving, Mum prioritizes homeownership.
S1: She's thinking of those long term goals. And I can't
S1: help but think that that sort of thinking, you know,
S1: you are what you see kids grow up repeating what
S1: their parents do. So there's some fantastic, you know, habits
S1: in place that should set her daughter up really well
S1: for the long term.
S2: Absolutely. And as always, thank you, Sam. And thank you
S2: for everyone else who's been sending in your budgets. If
S2: you feel like sending a budget, hit us up at
S2: it all adds up at 9:00 today. You send us
S2: some details, any questions you have, and it'd be really
S2: helpful if you could also send in a little voice
S2: memo of you asking the question. So if we if
S2: we do choose you, we can we can play it
S2: on the podcast like we did today.
S1: Yep. Just whip out your iPhone, do a voice memo,
S1: a voice note, and. Email it to us at. It
S1: all adds up at nine.com.au EU. And we would love
S1: to have a look at your budgets and respond to
S1: your questions.
S2: Thanks so much, everybody, and we'll see you next week.
S1: See you next week. This episode of It All Adds
S1: Up was produced by Chee Wong. The information discussed is
S1: general in nature and does not take into account your
S1: personal financial situation, goals or objectives. You should always do
S1: your own research or get professional advice before making any
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