Tuesday, October 23, 2018

kids

With the Bank of Mum & Dad being the benign constitution it is, it is likely your children are due for a significant financial culture shock when they find themselves responsible for managing their own money. And to be fair, it can be pretty complex, especially for hormonal teens, driven by peer pressure and their continual lust for the latest clothes and gadgets. Teaching your kids about the important of financial planning is critical to their long-term financial well-being and the sooner they learn and understand the value ratios of the dollars they earn versus the dollars they spend - and the cost of those all-important teenage 'necessities' the better for all concerned. 

State of Independence

There is no independence without financial independence. For any young adult, it is all about being in control of his or her own destiny (or at least feeling as if they are in control - even if Mum and Dad are still their personal chef, cleaner and taxi driver). Giving a child full control of their own budget is an incredibly important step on their path to self-sufficiency. 

Goal Setting

Talk to your kids about setting goals how to put them in place and the steps they need to take to achieve them. This is a vital skill and one that is crucial to happiness in every aspect of life. Get them to agree to a savings goal and help them work out what they need to do to action a plan to reach that goal. 

Sense of Worth

There is no better way for a person to learn about the true value of money than by spending his or her own money. When your child has saved, or earned the money to buy that new pair of expensive runners, they feel so much more precious than when they magically appeared with the swipe of your credit card. They understand just how long it took for them to attain that new item and are compelled to take better care of it. As well as giving them a greater appreciation of their possessions, this also gives them a boost to their own self-worth, for being trusted to control their own finances. 

Resisting Temptation

By learning to budget, teenagers learn about setting personal barriers and resisting temptation. They will be more likely to avoid frittering their money away on smaller desired items on a whim and feel compelled to save money toward the specific targets they have set for themselves. This is also a great lesson in avoiding unnecessary waste. Christmas and birthdays are often rich with money in envelopes from relatives who have no idea what to buy. Encourage your children to save this cash (or at least a good portion of it), rather than blow it on even more new stuff when they've just had an influx of gifts. 

Budgeting 101:

Set your kids on the road to better budgeting by:

  • Lead by example: sit down and go through the family budget with your child, so they can see how and where the family funds are allocated. They will probably be shocked to see the true cost of running the household, and it might just make them more appreciative of all your hard work (sorry, can't promise this, but you never know your luck!)
  • Make money part of everyday life: if you're feeling brave, once they've got their head around the family budget, let them have a go at controlling it for a while. Hand over the reins of the family shopping for a week. Or if you don't feel like risking Uber Eats seven nights in a row, how about starting small by allowing your child to plan for a family day out? Or even plan the budget for your family holiday. You can get creative with this, allocating the budget to them for any activity, and allow them to figure out how to spend it. You might be surprised that their objective view on things could help you make some valuable changes in your approach to family spending. 
  • Earning money feels even better than spending it: your kids might not be aware of this yet, so encourage them to get a part-time job. If they are too young just now, you can prepare them in advance by paying them to do certain jobs around the house. Once they have a regular income, they will be able to budget and save for big-ticket items.
  • We all know kids know more than parents about the internet and computers, so getting them to save and plan online will be a cinch. Why not ask them to explore the different types of accounts that are out there and compare the benefits, so they can make the most of their savings. 

 

 

guarantor

There's no question about it, getting that first step on the property ladder is getting harder and harder. You may be lucky that your parents are in a position to help you with a bundle of cash towards your deposit, but if not, there could still be a way they can help give you a financial leg up if they own their own home by becoming a parental guarantor.

What is a parental guarantee?

This means a parent can use the equity in their home as security against a loan taken out by their child. 

What are the benefits?

Using the equity in the parents' house as a deposit means you can skip to save for a deposit, and can move into your own home faster. Getting into the market sooner rather than later can be of critical importance in a rising market and saving the amount required for your deposit can be a challenge when you are renting.

If you don't have a deposit of 20%, lenders require you to take out lenders' mortgage insurance (LMI), which covers your lender if you are unable to meet your repayments. A parental guarantee could relieve you of this obligation, which can save you thousands of dollars. You will also benefit from lower interest rates than those available to buyers will smaller deposits. 

So, long as you make your mortgage repayments, it does not cost your guarantor a bean. 

It is not for ever! Once you have built up some equity in your home, or have paid off enough of the principal loan, your guarantor can be released from the agreement, though this may incur fees. 

What about the risks? 

If you do decide to go down this route you will probably want to feel pretty confident in your ability to meet your mortgage obligations. Should you default on your mortgage, your guarantor will be liable for the entire sum that they have promised to cover. Depending on their circumstances, it is possible this could lead to them losing their home. 

Acting as your guarantor will have an adverse effect on their ability to take on further loans for themselves or others. 

This is clearly not a decision that should be taken lightly or rushed into without first seeking some expert advice or without all parties understanding the full implications. But by doing your homework and working with a trusted mortgage professional, tapping into the equity in a parental house could speed up your move into a family home of your own.

 

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Contact Details

Zippy Finance 

PO Box 3078
North Turramurra
NSW 2074

T 1300 855 022 

Louisa Sanghera is a credit representative (437236) of BLSSA Pty Ltd ACN 117 651 760.  Australian Credit Licence 391237. ABN 85 168 278 975.

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