You’re Sexist, Barefoot!

Scott,

I am usually a fan but I was rather disappointed by the way you described picking up your son from kindy in a recent column. To me your language came across as sexist, and I think we can all (especially someone in a position such as yours) be more careful in the way we phrase things. I have always recommended you to people (including my girlfriend just recently), but if your advice is going to come with a side of gender stereotyping, then that will come to an end.

Tim

Hi Tim,

First, let me put down the vacuum cleaner so I can type with both hands.

Okay, ready.

Tim, I’m guessing you’re upset about a column I wrote recently where I recounted a conversation I had with a mother at my kid’s kinder class: “are you in between jobs?” She innocently asked me. When I told her that I wasn’t, she replied, “oh, it’s just that not many fathers pick up their sons … in the middle of the day.”

I’d say that’s a classic case of gender stereotyping right there … but I actually found it funny. Though I admit if I was actually out of work, it might have knocked my confidence a bit.

Anyway, the guts of the column was about Australia’s biggest bank using its marketing muscle to send in cartoon credit card mascots to primary school assemblies. And that’s definitely something we should all be deeply offended and outraged about.

Scott

ING Direct Fees Rip Off!

Hi Scott

ING Direct came to the market a few years back with great product called Living Super (you call this type of fund ‘SMSF Lite’ as it allows you to buy shares within super). If memory serves, it was the first super provider to offer a zero-fee balanced option and it really shook up the market. I was attracted by the ability to access low-cost index ETFs and construct a low-fee share portfolio within my super.

Fast forward a few years and everything has changed. There are now fees on the balanced fund option, and the annual trading fee is 0.50 per cent. It works out as a $700+ increase, negating the very reason for buying the ETFs over a standard fund.

I rang ING and was told the reason was that they have been absorbing costs for a number of years - sounds like a loss leader to me to capture market share. Is this legal? Further, the Morningstar report they commissioned to justify their changes is laughable. I am very angry, because moving super is a pain and you are exposed while you are out of the market! I know AustralianSuper have a similar product. Do you recommend it, are you aware of any others?

Also, I want you to share this with all your readers are aware of these very significant changes to the ING Living Super product.

Cheers,

Luke

Hi Luke,

When ING launched the zero-fee super option, I called them up and asked them, ‘what’s the catch?’.

After about twenty minutes of bulldust bingo, I basically worked it out: technically the product was ‘free’ … well, as long as you parked a certain amount of your super in a cash account that paid below the market interest rate.

Uh-huh.

That sort of marketing is too tricky for my liking -- and it seems also for ASIC, which made ING Direct compensate 24,500 of their customers $5.38 million for their “potentially misleading” fee-free statements they made about their Living Super product.

That’s why I’ve never recommended ING’s Living Super product. There’s no such thing as a free lunch!

So, what should you do?

First, you need to look at the costs of switching: you’ll have existing insurance cover in place, and you’ll also have tax implications. However, if you do a bit of research you’ll find there are a range of low-cost industry funds that have dirt cheap “SMSF-Lite”, otherwise known as direct share investing options.

Scott

Reminder: I first wrote about this years ago and highlighted the low fees. Today there are better bank accounts on offer. How do I know? Because my readers constantly email me about them! So before you do anything, google the best accounts on offer now.

Changing My Life, One Day at a Time

Hi Scott,

You won’t remember this because you speak to so many people each week, but I wrote to you in late November last year about being overwhelmed by receiving a payout from the Church for $175,000, and you were kind enough to give me a call.

The advice you gave me was incredibly helpful. You told me to put most of it away in a term deposit until I’d decided on things, so I could get rid of all the crazy ideas floating around my head. Doing that was an amazing first step. Then I got a copy of your book and have been following the ‘Barefoot Steps’.

I am still going through some yucky procedures, trying to get some proper justice, and have had to take time off work to cope. But when I have bad days, I take out my drawing of the buckets and it reminds me that I am going to be safe, no matter what. The money has ended up buying me some valuable time to recover and rest, which is changing my life, one day at a time.

I write with no expectation of reply, just wanted to say a sincere thank-you. Keep doing your thing.

Rebecca

Hi Rebecca,

The Barefoot Steps are focussed on keeping you financially safe and secure. And after what you’ve been through, that’s exactly what you need. Thanks for writing, and keeping us updated on your journey. You’re on the right path.

Scott

Barefoot Goes to Church

“Did you get a letter … from the Bishop?” my mother asked casually over coffee a couple of months back.

I looked at her for a full 30 seconds in silence.

“I get a lot of letters from old people”, I told her (only half-jokingly).

“I think he wants to book you for a speaking gig — for the clergy. But I want you to know that I haven’t committed you to anything” she said (and I believe her — my mother is a good Christian woman, and she wouldn’t lie).

Still, in her world, the Bishop is kind of like my Buffett. He’s a big deal. Even so, I gently explained to her that my days as a travelling seminar speaker are now over, and as a result I wouldn’t be able to do the gig.

The Barefoot Commandments

So this week I … walked into a church in Bendigo to do my presentation for the faithful.

(I decided it’d be wise to keep in good with the big boss … after all, she is my mum).

I was there to answer their specific financial questions. However, I first wanted to give them some context: explain to them who I was, and what I was about — because my worldview affects the advice that I give.

I also decided it would be fun to structure my speech around the Ten Commandments — which I called the Barefoot Commandments — and I whittled them down to three, because, well, that’s what the kids do these days.

(Cue nervous laughter from the congregation.)

So, as I prepare to pass the plate around, let me give you my Barefoot Commandments:

1. Seek Safety and Security

Standing in front of my burnt-out home following a savage bushfire was a good test on what matters.

To my surprise, I worked out that I honestly didn’t care about my stuff (and I proved it by not replacing a lot of it). Yes, that sounds like a story from Chicken Soup for the Soul, but it’s true. Instead, what mattered in that moment was that I was able to turn to my family and say “I’ve got this”.

And over the next couple of years we not only rebuilt our home, but rebuilt our family life. I did the unthinkable — I quit prime time television, and turned down almost every opportunity that involved travel. Today I spend my time on the farm with my wife and two sons.

Your net worth isn’t the same as your self-worth.

Everyone wants to get wealthy, but in the process, some give up their safety and security. Case in point, you’d be surprised at the number of $300,000-a-year executives who are rushed, stressed, and chained to their salary — but justify it all by saying “I’m doing it for my kids” (who they hardly see).

The best part is that safety and security are achievable for pretty much everyone who has a full-time job. If you’re living in a home you can afford (rented or owned), spending less than you earn and have some Mojo (my word for savings) tucked away, you’ve all but eliminated the biggest cause of family break-ups.

Feeling in control of your life — and being in control of your time — is true wealth.

2. Keep It Simple

I get a lot of hate mail these days, and most of it is from people criticising me for being too simple.

(Guilty as charged).

Yet let me explain why I’m so simple. These days I’m fortunate enough to be classified (in they eyes of the law) as a ‘sophisticated investor’. This basically allows me to invest in all sorts of weird and wonderful investments that smaller investors aren’t allowed to access.

I get to drink off the investment top shelf!

However, what I’ve learned from the experience is this: anyone who makes things overly complicated is usually trying to sell you something. And generally it’s rubbish.

Case in point: Warren Buffett famously laid down a ten-year million dollar investment bet against Wall Street exclusive hedge fund managers — and cleaned their investment clocks with a dirt cheap no-frills index fund your grandmother could invest in.

Besides, what sort of weirdo wakes up wanting to make things more complex?

Life is busy enough, and I’m still getting my head around programming the dishwasher. If you make managing your money too complicated you won’t stick with it — especially if you have a partner who isn’t as money-focussed as you. There’s power in keeping things simple, and focussing on one thing at a time that builds more safety and security in your life.

3. No One Cares More About Your Money than You

I’ve written this column for over a decade, and I’ve made a lot of enemies in the finance industry. Yet the truth is, I know of no other industry that makes so much money from the complacency and ignorance of their customers.

Let’s take one example:

Bank-owned super funds have, on average, underperformed not-for-profit industry super funds by more than 2 per cent over the past decade. The difference basically comes down to the fees.

A study by Industry Super Funds (using SuperRatings data), found that over a 19-year period your balance would be 5 per cent higher if it was in a low cost industry fund. It doesn’t sound like much, but it’s potentially tens of thousands of dollars (or more) that you don’t get to spend in retirement.

When it comes to your family’s financial future — and their safety and security — no one cares more about your money than you do.

Amen.

Tread Your Own Path!

Barefoot Goes to School

Hi Scott,

I am a high school economics teacher. This week I made your recent article ‘How Not to Raise a Spoiled Brat’ required reading for my Year 9/10 class. I am looking forward to hearing their thoughts! I am also planning to play the ASX Sharemarket Game with the class. Do you have some top tips for them as they try out investing for the first time?Cheers,

Miss J

Hello Miss J,

Even though I’m a former employee of the ASX, I have to tell you that I’m not a huge fan of the game, because it encourages short-term trading, not long-term investing.

My tip would be for the class to do some real-world homework. Have them ask their parents three questions: Where is their super? How many super funds do they have (most people have three)? And what are they being charged in fees (as both a percentage and a dollar amount)?

That’s one lesson the entire family would never forget!

Scott

The Ethical Dilemma

Hi Scott,

I have a question about ethical investing. Having done some research on ethical funds, I find myself stuck between two extremes. Some have low fees but are not ethically stringent enough for me. Some are super stringent but have high fees. I want something in the middle. So I was wondering what your thoughts were on Morphic Asset Management, which is seeking to raise more than $200 million for the Morphic Ethical Investment Trust, to be listed on the ASX.

Louise

Hi Louise,

Choosing a fund boils down to two things: do you understand it, and how much are they charging?

Here’s how Morphic explain their fund:

“This will be an opportunity to invest in an ethical long/short equity fund providing you with diversified exposure to a portfolio predominantly comprised of global listed Securities and Derivatives that comply with the Company’s social and environmental guidelines.”

Louise, before you invest your hard-earned with them, you need to understand that paragraph.

Okay, now onto the costs. As an investment grump I pick up the prospectus and skip past all the pretty pictures and all the marketing guff, and go straight to the fees -- since that’s the only thing in the prospectus that you can actually count on happening:

They’re charging 1.25 per cent per annum, plus a 15 per cent outperformance fee.

That’s too damn high for me. Research from Standard and Poor’s proves that 80 per cent of fund managers can’t reliably outperform a cheap index fund over the long term.

So if I were in your shoes, I’d invest in the UBS Ethical International Fund (ASX:UBW). It’s simple to understand: it’s an international index fund that screens out companies involved with tobacco and weapons. How much do they charge? A low 0.35 per cent.

Scott

A Father’s Final Wish

Hi Scott,

Sadly, my husband has just been advised that his cancer has moved to ‘terminal’ (he is only 48). We are devastated, but the reality is we have to make some hard decisions about where to go from here. Luckily, we have always believed in having life insurance, and that will more than cover the mortgage, so financially my boys (10 and 13) and I will be okay. But I want to make sure it stays that way. After ensuring we are debt free, I want to invest some money for the boys, and I am torn between AFIC shares and investment bonds. Any advice would be appreciated — we have so many decisions to make.

Jen

Hi Jen,

My heart breaks for your family.

The simple answer is “yes” — buy some shares in a low-cost index fund. But there’s nothing simple about your situation.

If I was your husband, my only wish would be to make sure that my family was financially secure.

So let’s grant him that wish.

Speak to his super fund immediately and lodge an application for a terminal illness condition of release, for which you’ll need sign-off from two doctors (one a specialist). This will give you access to his death benefit now, instead of having to wait.

Then, sit down as a family and discuss what you’re going to do. Now here’s the really important point — turn this into a life lesson for your boys.

xplain to them that you’re going to be okay because their father is a good provider who made sensible financial decisions, like taking out adequate insurance.

When you get the payout, pay off the mortgage, put something aside for a final holiday together (or to pay hospital expenses), put three months of living expenses in a Mojo savings account (extra if you’re taking a break from work), buy your low-cost index fund, and park the rest in a 12-month term deposit so you can allow yourself time to grieve. The best way to look after your sons is to be financially strong yourself.

Scott

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

A $25,000 Gift to First Home Buyers?

Should first home buyers be allowed to raid their super to fund a house deposit?

“No”, declared Malcolm Turnbull boldly in 2015, before adding that it was “a thoroughly bad idea”.

Then again, in 2015 the Minister for Networth also said that he thought Tony was doing a dinky-di job …

And that’s the perfect frame for what’s going on with the current housing debate: it’s got nothing to do with creating effective policy — and everything to do with politics.

Right now housing affordability is the ultimate “bbq stopper” issue, and the Government wants to be seen to be doing something about it on Budget night.

My worry is that if first home buyers aren’t careful they may find themselves with apples in their mouths and a banker sharpening up a pointy metal rod in the years to come.

Let me explain.

What do you think would happen if I walked around at an auction and handed first home buyers an extra $25,000 from their super funds?

They’d just throw in a few higher bids.

Then after the house sold they’d say … “By jingo, look at how much prices are jumping! Thank god I was able to access my super!”

A Lesson from the Canadians

Thankfully we don’t have to rely on make-believe scenarios where I walk around doling out dough like some housing super Santa. That’s because our resource-rich cousins, Canada, already have a similar super-housing scheme that’s been running since the 1992.

It’s called the Home Buyers’ Plan, and it allows first home buyers to borrow $25,000 from their retirement account to fund a deposit. The catch is that you have to make tax-free repayments each year — otherwise you’re hit with penalty tax.

So how’s it worked out for the Canucks?

Not well.

Data from the Canadian Revenue Agency in 2013 suggested that almost half the borrowers had yet to pay anything back.

Why?

Well, I’ll take a stab in the dark and suggest it’s probably because they can’t afford to make the repayments. They’re what I call ‘postcode povvos’. All the 25 grand did was help stretch themselves into a tight spot that they now can’t get out of.

D’oh!

A Massive Mistake

Okay, but has the Home Buyers’ Plan at least helped make housing more affordable over the last 25 years?

Well, no.

Canada is recognised as having some of the most unaffordable property in the world. In fact, the Bank of Canada (our version of the Reserve Bank) has gone so far as to produce a Youtube video that warns the public how their record high household debt and inflated house prices could combine to devastate the economy.

Scary stuff.

And guess what? Australia actually has higher household debt, and more unaffordable homes, than Canada.

Double d’oh!

One of the original Canadian MPs who signed off on the Home Buyers’ Plan, Garth Turner, now calls the program a “massive mistake”, and has warned our government not to go down the same path.

Turner calculates that young Canadians have taken $30 billion from their long-term retirement accounts that may never be repaid — money that should be compounding away and providing for their retirement.

So will it happen here?

Well, we’re still seven weeks away from Budget night. And the fact that the Government refused to rule out the idea this week suggests that — in the time-honoured political tradition that is Budget night — they’re contemplating putting common sense aside.

Whatever happens, just remember that 2015-Malcolm was right: this is a thoroughly bad idea.

Tread Your Own Path!

Update: Pay The Screamers First

Just over a year ago, I wrote about a company called Nant Whisky.

Nant had come up with a neat little investing scheme that involved investors buying Nant whisky barrels via their Self Managed Super Funds (SMSFs). Nant guaranteed to buy the barrels back in four years for a 9.55 per cent per annum compound return. Smooth stuff.

The problem for the investors was that the person behind the ‘guaranteed buyback’ was a bankrupt Gold Coast businessman by the name of Keith Batt.

In the process of writing the piece, I interviewed Batt and said to him point blank: “Keith, I think you’re selling whisky barrels that don’t exist … so what I want to know is this: when are you going to run off with people’s money?”

Batt didn’t bat an eyelid: “We will buy back the investors’ barrels in four years’ time.”

After my piece was published I was flooded with emails from Nant investors.

They nearly all said the same thing: “Well, I guess I’ve lost my money (sad emoji).”

Yet there was one investor, a bloke by the name of Fraser, who played it very, very well.

I actually spoke to him on the phone and gave him this advice:

“Look, this thing is going down quicker than a scrawny teenager who’s drunk way too much of his dad’s whisky. But these guys almost always have some money set aside to pay off the screamers. So be the screamer.”

At that stage Keith Batt was still publicly assuring his investors that things were hunky dory … but wasn’t giving them back their dough.

Fraser started screaming. He must have emailed Nant 30 times demanding payment.

That’s not an exaggeration.

I know, because he cc’d me on every one of them.

It was like I was in inter-office corporate hell: “Why I am getting all these freaking emails?!”

Well, turns out I wasn’t the only one with email fatigue: Fraser got all his money back from Nant.

Last week the ABC reported investors were “terrified” of losing their money, after the Herald Sun revealed an audit had found that over 700 barrels (sold to investors for $12,500 a pop) never had a drop of whisky in them.

And now the receivers have been called in.

And what about Mr Batt?

Well, he told the media that he’s no longer a director of Nant, and that he has “no legal connection to Nant Distillery or any Nant company”.

I spoke to Fraser last night and got his approval to tell you this yarn.

It sounded like he was in a pub … hopefully enjoying a smooth whisky.

Cheers, Fraser.

You played a screamer, mate.

Should I Help Out My Dad?

Hi Scott,

I am a 30-something single renting in Sydney -- and I have saved up a $25,000 deposit towards a home. My dear dad is an expat on a whopping wage overseas but has just lost half his retirement money to his very predictable ex-girlfriend (now there’s a bad investment!). He wants to retire next year at 60, and his super is good but he will only have $250,000 to buy a place when he returns from overseas. I am thinking of putting my deposit into a loan to go halves with him in a property for him to live in. Am I silly?

Bec

Hi Bec,

Yes, that is a silly idea.Your old man is actually in a very fortunate position: he’s still got a decade of work ahead earning a ‘whopping wage’. So all he has to do is keep his pecker in his pocket, and keep working until he can afford to actually retire. If only every question was this easy! Keep saving for your own joint.

Scott

My Mother is $90,000 in the Hole

Hi Scott,

I knew my mum had debt, but when she finally fessed up I was absolutely shocked. She owes $90,000 in credit cards and personal loans due to gambling and spending. She is aged 60, has $120,000 in super and earns $2,000 a fortnight. She lives with my brother and pays no bills. She has now agreed to turn around things around and has given gave her credit cards to me. Please help.

Helen

Hi Helen,

You should congratulate your mum for admitting the extent of her financial problems -- that’s a really big step. No doubt she feels a lot of shame about her situation.

Now, you both need to be realistic about the hole she’s in: gambling addiction is a horrible disease that takes a lot of time and a lot of effort to treat. Having your mum hand over her credit cards is a symbolic step -- kind of like an alcoholic tipping their booze down the sink -- but it doesn’t stop her from going out and poking the pokies when she gets a craving.

Here’s my thinking: if your mum doesn’t have any assets, she could look at declaring bankruptcy.

Reason being, after you’re declared bankrupt you can earn up to $54,736.50 per annum before having to make repayments to your trustee -- and your mum earns under that.

In other words, she could stiff her creditors, wipe out her consumer debts, and keep all her income. Just writing that makes me feel physically ill -- but that’s the dollars and cents of it.

Once she’s got that sorted, she has an even bigger hurdle to face: she has reached her preservation age, and she’ll be able to access all her super in five years. If she’s not on top of her gambling addiction, there’s a chance she’ll blow it. Then she’ll be the one who gets stiffed ... by the casino.

Scott

Boom Boom

Hi Scott,

I got caught up in the mining boom and bought an investment property in Karratha, WA, at the peak. While the economy was booming it was great, but now rent is just 25 per cent of what I used to get and the property has halved in value. I have to fork out $200 a week to cover the interest-only loan, on top of rent, insurance, rates, etc. It is crippling. Luckily, I had paid off the mortgage on my home. I am thinking my only option is to ride it out, hoping it will eventually go up again. What else can I do?

Will

Hi Will,

No, you have another option … you can sell, cop the loss, move on, and focus on the future.

Truth is you bought the financial equivalent of a Beanie Baby when everyone was losing their … beans. As a result, you’ve anchored yourself to a price that may not be seen for decades, even though the mining sector is picking up.If you think you were given poor advice, or believe you were given a loan you shouldn’t have entered into, you can make a complaint to the Financial Ombudsman Service (FOS) -- a lot of the mining town investments were sold by sleazy seminar spruikers -- but it’s a slim chance.

Look, the only thing you can have some control over is your out-of-pocket costs -- and the longer you hold onto this turkey, the more it’ll cost you. In all the years I’ve been doing this, I’ve never seen time turn a bad investment into a good one. Having said that, only you can make the decision on when it’s time to sell.

Scott

For Richer, For Poorer

Hi Scott,

I currently earn a good salary, save around 35 per cent of my pay, do not have any debt (other than HECS), and am a long way into saving for a deposit for a house. My husband is a second-year apprentice who earns less than half what I do. We split most expenses 50/50, though I pay a bit more rent. I feel like I have to save for the two of us, and this stresses me out. I also feel resentful that he is not in the same position to save for our future as I am. How would you handle this situation?

Lisa

Hey Lisa,

Here’s a refresher for you:

“I, Lisa, take this [poor young up-and-coming apprentice] to be my lawfully wedded husband, to have and to hold, from this day forward, for better, for worse, for RICHER, for POORER, in sickness and in health, until death do us part.”

That’s what this is about.You’re building a life together -- you’re building a family together -- that requires a team effort.

So stop being a ball-breaker and cut your husband some slack: apprentices get paid bugger all while they’re learning their trade -- but at least he’s not incurring a HECS-HELP debt. Yet if he’s a hard worker, his income will jump in the years after he gets his ticket.

Now, before you blow your stack and write me an angry reply, let me share with you this little tidbit: I can chart my increasing income back to the day that I met my wife. Since we met, she’s been my biggest cheerleader.

Scott

Schools sell out their kids for cash

Let me give you a window into my Wednesdays ….

Every Wednesday, I’m just one of the girls.

That’s because I do the pick-up for my son at kindy.

All the mothers come in wearing Lorna Jane activewear with their hair pulled back in ponytails.

“Are you in between jobs?” one of them asked me innocently the other day.

“Huh?” I asked.

“Oh, it’s just that not many fathers pick up their sons … in the middle of the day.”

For the record, I told her that “I’m always scratching around for something to do” (unless it’s tuckshop).

That being said, I’m definitely going to play a big role in my kids’ education, especially their financial education. And if an ABC Drive radio interview I did this week is any guide, I’ve got my work cut out for me.

Let me explain:

I got a call from an ABC presenter earlier in the week, asking me to join in on an interview she was about to do with Sarah — a furious mother who’d just witnessed something unsavoury at her kid’s primary school assembly.

Now as shocking as what I’m about to tell you sounds, I promise it’s 100 per cent true (and verifiable on the ABC radio website):

Presenter: “Sarah, tell us what happened at your child’s primary school assembly.”

Sarah: “The Commonwealth Bank … did this presentation that left a bad taste in my mouth … Probably the most disturbing thing was that the female presenter was accompanied by a mascot who was someone in a costume, who was introduced as ‘Cred’, which I assume is short for credit.”

Wait a minute. Let’s have some fun:

I picture ‘Cred’ as Gary, a 34-year-old out-of-work actor, whose last role was at a theatre restaurant.

We find him backstage of the Gilmore Heights Primary School assembly.

He takes a final drag of his fag, stubs it out with his oversized yellow cartoon foot, and puts on his styrofoam cartoon head.

He’s now in character.

He’s not Gary (who, come to think of it, probably has a heap of credit card debt).

He’s Cred, a cool dude who plays by his own rules (but is also careful to follow the terms and conditions of Commbank’s credit policy).

“Hey kids! Do you want to learn about credit cards?!” he says as he wobbles out on his skateboard.

The kids stare at him in silence.

Okay, word up to Commbank’s lawyers: I have absolutely no evidence that Cred is an overweight, out-of-work actor. I just made that up. But what I could never have made up is Sarah’s account of the presentation, which is true, and even funnier, and even more tragic:

Sarah explained that the reason she and the other parents were at the assembly was to see the Year 6 play. But Cred and his banking buddies were running way over their allotted five minutes.

Sarah: “It went for about 20 minutes in the end, which took up about half the assembly and cut short the play that the Year 6’s had written and practised.”

You can picture it, right? Little Timmy and his classmates are patiently waiting in their cute costumes, nervously glimpsing at their proud parents standing up the back, who’ve taken time off work to watch their performance.

Well I’m sorry, Timmy, but your little play doesn’t pay the bills. Today you’re getting a lesson on how the real world works! When you earn $9.45 billion a year in profits — and you’re paying thousands of dollars in kickbacks to schools for signing up kids — you can stay on stage as long as you goddamn want.

But maybe I’m being a little harsh.

After all, I’m always banging on about the importance of giving kids financial education. Surely the Commbank presentation taught the kids something … surely it wasn’t just a blatant ad?

Well, no.

“The presentation was aimed at getting the kids excited, rather than having any financial literacy content”, said Sarah. “So they talked about what they could win if they made deposits, and got them to do a Mexican wave … for really no apparent reason.”

When Sarah had finished her story, the ABC presenter turned to me for my thoughts.

“Just how lame would that school assembly have been?” I said.

Yet make no mistake, signing these kids up is serious business for Commbank. The presenter mentioned that Commbank’s Dollarmites program is in 4,000 schools across the country, and that, according to a survey, two out of five people still use the same account our parents set us up with. That’s seven million Aussies who’ve never switched bank accounts.

That cute little passbook they get at age eight puts them on a marketing database that spits out a credit card when they turn 18. As I’ve said in the past, having Commbank — the biggest credit card issuer in the land — teach financial education in schools is like having Ronald McDonald teach kids about nutrition.

Here’s Your Chance, Malcolm Turnbull …

Word is that Malcolm Turnbull is pinning his political hopes on making a splash with first homebuyers in the May budget. He and ScoMo are cooking up all sorts of weird schemes in the hope it’ll buy them some love at the polls.

However, their schemes will no doubt have as much credibility as … Cred.

Giving every first homebuyer more money (or whatever Malcolm has in mind) to put towards their first home will not make property cheaper. It’ll actually make it more expensive — because first homebuyers will simply spend that much more on a place.

The main reason that houses are so unaffordable right now is blindingly obvious: the banks have lent us a record amount of debt … at a time when interest rates are at record lows.

Australia has one of the highest rates of household debt in the world. More than the Yanks. More than the Greeks. More than the Poms. And at some stage, when interest rates rise, our day of reckoning will come.

So Malcolm (or Malcolm’s junior press secretary who is actually reading this), here’s a suggestion for the May budget. Instead of giving first homebuyers another cash grab that will only serve to further inflate property prices, be the first prime minister in history to adequately fund a financial literacy program — taught by truly independent — in every Aussie school (minus the mascots).

The right wing of your party will love it: conservatives have wet dreams about promoting fiscal conservatism and self-reliance. And for what would be a rounding error in the budget, it’ll pay huge dividends in the future. Take it from a bloke scratching around for a job in the middle of the day — financial education is a core life skill. It’s too important to leave to Cred.

Tread Your Own Path!

Here’s a Shout Out to All the Renters

I froze.

Live on television.

The sweat welled up my back, and in my ears, making the voice coming from my plastic earpiece crackle.

“Scott … What do you have to say to the caller?”

Thankfully this moment happened at the start of my career. And thankfully it happened on Sky News (audience: seven Young Liberals) on a low-budget talkback show that consisted of the audience calling up and asking an expert money questions.

(I was the expert.)

Unfortunately for me, the first caller happened to be a bitter former colleague, who decided he was suitably sloshed to call up the show and take me down a peg or two, live on TV:

“And why should anyone lisssen to yoo? You don’t even own ya own home. You’re a … RENTER!”

For a good 20 seconds I sat in front of the camera saying nothing, swimming in my own insecurities.

Maybe he was right. I mean, what sort of financial expert was I if I didn’t even own my own home?

At the time my lack of homeownership gave me an inferiority complex. I felt like I was locked out of the grown-ups club. Like I didn’t belong at the big people’s table at Christmas lunch: “Put on your silly paper hat and go and sit at the card table with the other kids.”

“But I’m 28!”

“But you’re still a renter!”

If you, dear reader, are a renter, you know the feeling.

And you probably wish it didn’t matter to you as much as it does.

That’s why I’m doing a shout-out to all the renters.

Don’t Become a Postcode Povvo

There’s a lot of pressure on young people to become postcode povvos. That’s the name I give to people who hock themselves to the hilt so they can live in a fancy suburb … and end up living lives of quiet desperation.

In January, an extensive study of 26,000 Australian households by Digital Finance Analytics found that around 20 per cent of homeowners — one in five — are so stretched that they could lose their homes if interest rates rose by even 0.5 per cent.

O.M.G.

So let’s put down the crack pipe for a moment. What the hell are these people thinking?

I’ll tell you what they’re thinking, because I have conversations with them all the time:

“My mother is so proud of me” (plus, she also gets to brag to her friends that you’re ‘sorted’).

“The bank lent me the money, and they wouldn’t have done it if I couldn’t pay it back … right?”

“House prices are going through the roof, so while things are tight now, it’ll surely pay off.”

Like a cranky old high school maths teacher, I’m continually amazed that most people make the biggest financial decision of their lives without actually doing the sums. Don’t get me wrong — plenty of people spend hours working out ‘how much can I borrow, and what will that get me?’

Yet very few people calculate the total cost of homeownership (rates, maintenance, insurance, higher interest rates in the future) or think realistically about how long they plan to live in the home they buy. Upgrading in less than 10 years is almost always a wealth-reducing exercise when you factor in stamp duty and agents’ fees.

You’re Not a Loser if You Rent

Despite what everyone around you might say, there are many intelligent reasons why you would choose to continue to rent and save, rather than borrow and buy:

Like that you haven’t found your prince (or princess) yet. Or that you’re not sure where your career will take you. Or that you can’t afford it right now — that’s a bloody good reason.

Fifteen years of being the Barefoot Investor, together with the 19,000 questions I have sitting on my email database right now, has taught me this: very often it’s the case of the rich renter and the poor homeowner. So chin up, renters. Pull those shoulders back. Delaying gratification is a sign of maturity — a sign of strength.

If I could teleport myself back to that TV show, I would stare down the barrel of the camera and say:

“While I think everyone should eventually own their own home, I don’t think you should rush into it. I don’t own a home because I’m still saving up my deposit. It’s not easy. In fact, it’s a bloody hard slog. But it’s a much better than being a broke homeowner or — worse — a postcode povvo.”

Tread Your Own Path!

Barefoot Business

Hey Scott,

I do not have a question ... more of a suggestion. I am a 29-year-old, self-employed electrician and I just finished reading The Barefoot Investor. Great book! Down to earth and no ‘BS’ like you get in most money books. I would love you to write another book aimed at people who are self-employed, showing them how to manage their money. Nearly all the books I can find on this subject are 1) hard to read, 2) full of big words, and 3) wanky. Any chance?

Peace,

Ben

Hi Ben,

Truth be told, I only chose your question so I could ‘humblebrag’.

To the amazement of my publisher (and the entire publishing industry, I’m told), my little finance book has been the number one bestselling book for the seventh week in a row.

Finance books are supposed to be seen and not heard (or read). What the industry doesn’t know is that it’s people who read this column who are buying it by the bucketload for their family and friends. So to all of you who have supported me, humbly I say thank you.And to answer your question, Ben, the Barefoot Steps that my book is built around work just as well for a self-employed person or small business person as an employee. Common sense never goes out of fashion!

Scott

The 17-Year-Old Millionaire

Hi Barefoot,

I have a 17-year-old son who has a part-time job. He has saved over $1,000 and would like to start investing, but CommSec says he has to be 18 to buy shares. So how can he enter the share market with as little help from me as possible? After all, it is his money and he has worked for it. He is looking at buying Coca-Cola Amatil -- I said that, as he drinks enough of it, he might as well own part of it. Or is he just too young to get started? It’s funny -- my wife and I have accumulated over $2 million in shares and we are still not sure how to get him started!

Darrell

Hi Darrell,

Take a bow, mate, it sounds like you’ve raised a financially fit kid! Most 17-year-olds are more interested in buying Jim Beam and Coke than shares in Coca-Cola Amatil.

Now, while you could buy some Coke shares in your name, in trust for your son, I don’t think it’s a good idea.

What happens if Coke suddenly loses its fizz?

It would be the ultimate aversion therapy! If he loses money it could scare him off shares for life.

So, my advice would be for you to encourage him to keep saving and to experiment on your portfolio. Why not challenge him to select a couple of shares that you invest in? Then the two of you can follow them (without laying any actual money down), and even do some field trips to check out the company’s products and services.

Here’s the thing: when kids become teenagers they often don’t want to talk to their parents.

This is a bond that you can share with your son.

When you talk to your kids about money and investing it lasts a lifetime -- trust me.

Scott

High Income Earner

Hi Scott,

I am 32 years old and earn a good wage ($225,000 p.a.). I have decided it is time to start contributing more to super, and my plan was to increase my contributions to 15 per cent as you recommend in your book. However, in doing so I go over the concessional cap of $30,000 and will have to pay my full income tax rate for the extra contributions over that amount. My question is, does your advice change under these circumstances -- should I limit my contributions to the cap amount? I feel at my age the money is better invested outside of super if I am paying the same tax. Would appreciate your thoughts.

Thanks,

Andrew

Andrew,

You’re spot on, cobber. You should reduce your salary-sacrifice contributions so that the total of your employer guarantee, including your salary-sacrifice contributions, does not exceed the pre-tax limit of $30,000 per year.

(Note: this will reduce to $25,000 p.a. from 1 July 2017. D’oh! )

The balance should be invested outside of super, preferably through a family trust into good quality shares.

Scott

Should My Boyfriend Contribute More Because He Earns More?

Hi Scott,

I am 24 and have been living with my boyfriend for the past couple of years. We have separate incomes and bank accounts but have joint accounts for rent, groceries and bills, which we go 50/50 in. I earn $40,000 a year (working full time in childcare) and he earns around $100,000. Even though I am a Barefooter, I am struggling to keep up, because a dinner out or a grocery shop is a huge chunk of my pay, whereas it does not impact him as much. Then again, he does have an investment property and a car loan, which I do not. Is it fair for me to ask him to contribute more than I do because he gets paid more?

Ella

Hi Ella,

No, I don’t think it’s fair to ask him to contribute more.

If he chooses to buy you something, or maybe shout you the occasional dinner, that’s just him being a chivalrous dude. There’s no ring on your finger, and you don’t have kids, so you’re essentially ‘friends with benefits’.

The bottom line here is this isn’t about him, it’s about you.You need to make bloody sure that you don’t try to live a $100,000 lifestyle on a $40,000 income. Trust me, it won’t work, and it will only lead to you eventually giving up your freedom -- either by getting into debt with a bank or incurring an emotional debt with a bloke.

So the answer is to say it loud and to say it proud: “I can’t afford it.”

There’s power in saying those words. Not in a whiny, teenager life-is-sooo-unfair tone -- but in a strong, confident, I’ve-got-my-stuff-together tone.

Ella, there’s nothing sexier than a strong woman who understands that a man is not her financial plan.

That’s the sort of woman guys want to marry. In fact, that’s the sort of woman I married.

Scott

Investing is a Foreign Language

Scott,

We are two middle-aged partnered women -- one retired, one about to go part time in a well-paid professional job. We have very good superannuation balances and are living (comfortably) off my salary. We are debt free and pay off our one credit card each month. We would like to explore investing in shares but know absolutely NOTHING about it. ‘Dividends’, ‘blue chips’, ‘bonds’ -- it is a foreign language to us. Where do we start?

Annie

Hi Annie,

You’re already an investor. Congratulations!

And you’ve been smart enough to invest via the most tax-effective structure available: superannuation.

The fund that you’re with now, probably invests on your behalf.

However, there are some low-cost super funds that now offer a ‘direct investment’ option, which allows you to take invest part of your super into buying individual shares that you select.

Of course, choosing which shares to buy is another matter. You could pay for the services of a full-service stockbroker, you may wish to do a course through the ASX, or you might want to think about joining my investment newsletter, the Barefoot Blueprint.

Right now investing may seem like a foreign language, but it really does come down to commonsense. Plus it’s a lot of fun!

Scott

Our Daughter is Deep in Debt

Hi Scott,

Can you advise my 24-year-old daughter on how to face the financial mess she has created? She lost her job in May and has lived off credit cards since then; she now has debts of $27,000. After a period of estrangement from us (she simply would not talk to us -- we think she was ashamed), she has finally told us about her problem. We already knew, as we are being hassled by credit collectors looking for her. She needs our support to get on track, but where to start?

Jan

Hi Jan,

Without a job, and with a shot credit file, the easiest short-term solution will be for her to go bankrupt.

But it won’t do anything for her self-esteem. To reconcile both her self-worth and her net worth, she needs to take responsibility for her actions and dig her way out of this mess.

She needs to have a win -- and you can help. So, sit down together and write out all her outstanding debts on a piece of paper so she can get the full picture.

Obviously, she needs to get a job (preferably two) and begin meeting the minimum repayments on all these debts. Then she should ‘domino’ her debts from smallest to largest -- focusing all her efforts on knocking out the smallest debt, just like a domino. Celebrate with her each time she pays off even one debt.

Give her all the love and support you can muster, but don’t bail her out -- let her find her own way back.

Scott