Pilot Gets Grounded

Hey Scott,

Last time I emailed you, I had a well-paying job as an international pilot, the share market was at a record high, my super was doing brilliantly, I was investing every month and we were planning a holiday to Greece. I wrote to thank you for changing our lives. Now the share market has plummeted, my super has been smashed and, thanks to COVID-19, I have no job. Now I am writing to REALLY thank you. Healthy Mojo, no credit cards and low-fee banking have prepared us well. More importantly, this is an opportunity to show our three young adult boys a real-life example of living within your means, and that the world does not end when hard times hit!

William

Hi William,

Dude, you’re facing your own financial fire with all the Alpaca attitude you can muster!(Non-Barefooters won’t have a clue what I’m talking about, but you will.)

You may be down, but you’re not out.

The thing I’ve learnt as a parent is that kids don’t always listen but they always watch:

And they’re watching you rise to a challenge.You Got This!

Scott

Newsflash: CommBank Sucks

Scott,

I have just received an email from the Commonwealth Bank that has left me furious. Without my consent they have reduced my home loan repayments to the minimum amount, to ‘help’ me during COVID-19. This change is promoted in the email as coming from the goodness of their community-spirited heart. I am gobsmacked there is not even an ‘opt out’ button. Instead you have to wait until May to change repayments back to the level you want, by which time most of us will have forgotten, and will then coast along for the next 20 years paying more than we should. Is this as dreadful an act of corporate greed dressed up as charity as it seems to me? 

Belinda

Hi Belinda,

No, I think you’ve nailed it.

Last year Commbank crowed about their plan to spend $5 billion on technology to serve their customers better.

Look, I’m no geek, but surely that’s enough dough to make a button appear on your internet banking that says:

“Click here if you want to reduce to making minimum repayments because of the Corona Crisis. Otherwise continue making higher repayments, you bloody legend!” (Or something like that.)

This behaviour reinforces my golden rule: don’t get between a bank and a bucket of money.

So what can you do?

Well, if you’re employed, right now is a once-in-a-lifetime opportunity to get the banker off your back. And, as I’ve long said, there are only two ways to pay off your mortgage faster:

Make extra repayments (well, CommBank have temporarily buggered that one), or get a lower interest rate.

So check out online lenders, some of whom are 20% cheaper (or more) than CBA’s standard variable offering.

It’s almost as easy as clicking a button.

Scott

My Husband Is After My Super

Scott,

I need your help. I am 31 years old, earning $60,000, and my husband wants me to pull $20,000 out of super (which I can do because of the coronavirus situation) and put it on our mortgage to reduce our interest payments. He is convinced this will make us more money in the long run and that it is better for us to have control of our money rather than a superannuation company. I feel this is risky and do not have much in my super fund as it is. I feel pressured to do this.

Rebecca

Hi Rebecca,

There are a few reasons this sounds whiffy.

First, you should only raid your super as a last resort: if you’re in genuine hardship and you can’t pay your bills.

That doesn’t sound like you.

Second, you don’t want to end up with all your eggs in one basket:

I meet a lot of old people who end up at the end of their life owning their home, but have nothing else to live on. I also meet a lot of older, divorced women who don’t have a home or enough super.

The key to building long-term wealth is to spread your money around: property and shares (through super).

The final thing that stinks is that your husband is pressuring you.

This is your money.

Tell him to back off … but do it over a beer. Take him out on a Barefoot Date Night and show him the steps I lay out in my book: you’ll be making tax-effective super contributions and paying extra off your mortgage in no time!

Scott

How to survive the coming crisis

The old man leaned in and whispered:

“I’ve been preparing for a crisis like this for years.”

I was talking to none other than Peter Cundall, the 93-year-old former star of the ABC’s Gardening Australia.

“But then again, my life has always been punctuated by one crisis or another”, he added cheerily.

Now this was the perspective I was looking for: a man who’s lived through genuinely tough times.

(Okay, and I also had an ulterior motive in talking to him ... but more on that in a moment.)

So, as you and I struggle with couch-sores from all our Netflixing in lockdown, let me tell you Peter’s story:

He grew up in the height of the Depression, in working-class Manchester (where almost no one had a job).

Things were grim … and I mean really grim: his parents lost two babies to cold and poor nutrition.

In fact, Cundall says his family survived through the Depression largely by growing their own food:

“One of my first memories was when I was three years old. My mother gave me some leftover peas from the pea soup and told me to plant them in the backyard. And, lucky for me, in those days the streets were full of horse-drawn carts, so I ran along the road and scooped up fresh fertiliser that I used for my peas — free!”

That was Cundall’s first lesson in survival, and it would serve him well.

Over his next 90 years he would fight in three wars.

He describes the Korean war, where he was an infantry soldier, as “non-stop slaughter”.

“We lived in holes for a year … surrounded by the rotting corpses of our mates. Many were still holding live hand grenades. The smell of death was with us for a year. It got into your nostrils. You couldn’t escape it.”

In the next breath he told me that, even though he was entitled to a military pension, he never took it.

“Surely for all that pain and suffering you deserved it”, I said.

“Deserve it? No! I was one of the lucky ones, I came back! Life isn’t fair!”

After an hour of chewing the broccoli, I decided it was time to lay my cards on the table.

“Peter, my kids and I have a ‘lockdown project’ that we’d like to get your advice on.”

“We’ve picked a paddock, and the kids are going to grow an orchard. It’s a way of getting them away from their screens. To get their hands dirty. And to get them growing something.”

I explained that there are only three rules:

First, they get to eat as much healthy fruit and vegetables as they can stomach (!).

Second, they can sell it at our roadside farm gate.

Third, anything left over is donated to Foodbank charities.

And wouldn’t you know it, the kids are as excited as Peppa Pig in mud!

When I’d finished speaking, Peter sounded choked up with emotion:

“Scott, I’m an old man”, he said.

“And when you get old like me, you might understand why I feel like this, but … if I saw your little two-year-old gardening, well, I think I’d burst into tears.”

“What you’re doing is important, Scott. You’re teaching your kids how to survive.”

“Take it from me, that will stick with them long after you’re gone … and that is a real legacy.”

That evening I went out to the garden with my daughter … and planted some peas.

Tread Your Own Path!

Flattening the Financial Crisis Curve

You may think Australia has flattened the curve.

You are wrong.

While we obsessively track the curve of COVID infections, there’s another dangerous curve that’s just beginning:

The Financial Crisis Curve.

Make no bones about it: we are at the start of a very, very steep curve.

And when we reach our peak rate of infections -- in, my best guess, five months -- it could be financially devastating.

Like all curves, there are three phases.

Let me explain:

The Start (Now)

The other day I asked my boss at Anglicare Financial Counselling how busy we are in light of the Corona Crisis.

Her response floored me: 

“Truth be told, we’re no busier than usual ... it hasn’t really hit yet.”

Huh?!

It’s true. 

Given we’re at the start of the curve, a lot of people aren’t feeling many (financial) symptoms … yet.

In fact, many of my harder-up clients are making more money now than before the pandemic hit.

The rate of JobSeeker (formerly known as Newstart) has been temporarily doubled. And they’ve been given two $750 cash payments.

And those who’ve been stood down are getting the new JobKeeper payments of $1,500 a fortnight (including part-timers).

And almost everyone I speak to is planning on taking $20,000 tax free from their super over the next few months.

(Despite my protests!)

Even their house payments are cheaper now:

Rent is now negotiable. And if they have a mortgage, well, that’s negotiable too.

The banks have warmly embraced the narrative that they are the ‘financial doctors’ of this economic crisis, and they’ve been handing out mortgage pauses — but not interest rate pauses — like Pauline Hanson hands out how-to-vote cards on election day (lots of colourful drawings, not a lot of words).

Of course, there are many people who are stressed and struggling. It’s just that, as financial counsellors, we’re not seeing them yet (though that may be because they’re locked up in their houses trying to homeschool their kids).

Cast your memory back to when Scomo was weighing up whether he’d go to the footy one last time … that’s the stage of the financial crisis curve we’re at now.

The Climb (Approaching Soon)

We’re about to start coming out of lockdown.

Investors have been waiting excitedly for this day, for the last month.

Having initially panicked and seen the market drop by a third last month, they’ve ‘shaken it off’ like Taylor.

The US market has had a swift bounce, soaring 20% on the hope that things will get back to normal in no time.

Well, that’s one theory, which Donald Trump certainly wants you to believe (it is an election year after all).

Another theory is that the reopening of the economy will likely be slow, as we all watch out for sniffles ...  the dreaded second wave of the virus. Continued social distancing and travel restrictions will become the new normal.

Most businesses won’t snap back and re-employ all their workers. Instead, they’ll likely move gingerly and re-employ just a small number of people.

In the best case, workers will be back to the same hours with no pay increase for a long time. More likely, though, their hours will be reduced … or, in the worst case, they’ll lose their job.

And then comes … 

The Peak (5 months’ time)

By now we all know what happens at the peak of the curve:

With the coronavirus it’s when the hospital system cannot cope. With a financial crisis, it’s when unemployment peaks -- and that’s when the economy falls into a deep recession.

But it gets worse: see, this is also when the Government has said it will switch off JobKeeper, and cut the JobSeeker supplement back to half.

And with an economy in recession, the banks — our self-proclaimed ‘financial doctors’ — may lose their gentle bedside manner and start flicking off the financial life support for many people and businesses.

Depressed yet?

Flattening The Curve

Of course, this is just one scenario I’m painting, and it hopefully won’t turn out this bad.

Besides, as we’ve seen with COVID, when we collectively listen to scientists instead of grumpy old men like Gerry Harvey (who — let’s be honest — just wants you to spend your coronabucks at his chop shop), we can bend the curve to our advantage.

And I truly hope we do.

Yet my boss at the financial counselling agency reminded me of one thing:

“Remember, Scott, before coronavirus, the average wait to see a financial counsellor was three to six months ...

Imagine what it will be like in a few months’ time!”

Tread Your Own Path!

This Government Spending Is Crazy!

Dear Scott,

This isn’t going to be very popular, but I am going to say it anyway: as someone who has worked my entire life (I’m 67), I’ve never asked for a handout from the Government and I am a self-funded retiree. I am very annoyed the Government has embarked on this historic and idiotic spending spree. It’s the same old story: the smart savers bail out the no-hopers. I read one economist who suggested we’ll be paying back this debt for the next twenty years. You need to explain this to people. We need to wake up!

Wayne

Hi Wayne,

I agree with you: the Government’s spending will need to be paid back by future generations, either in the form of higher taxes, or fewer public services, or a combination of both.

And I also wholeheartedly believe that the Government should provide a safety net, not a hammock.

However, let’s get one thing clear: you won’t be paying anything back. You’re feet up in the recliner at midday, nodding off with a tax-free pension, you lucky bugger!

So, as a card-carrying worker with at least 30 years left on my punch card, and as a ‘high income earner’ who will pay a lot of tax over that time, let me tell you how I think about it.Three things:

First, I’ve learned not to get emotional about politics.

It’s a waste of energy, and I’d rather channel it into something productive, like financial counselling, or developing a money school program to show the kids of these ‘no-hopers’ (as you callously call them) that they can change their family tree. Now that is something worth getting riled up about!

Second, I’ve learned to compare myself to others and remember how fortunate I am.

I grew up in a caring country community, with loving parents, patient public school teachers and, later, dedicated university lecturers. Contrast this to many of my financial counselling clients, who grew up in public housing, with abusive and drug-addicted parents, and are trapped in an intergenerational cycle of poverty.

Third, look at the consequences.If we stop helping out these ‘no-hopers’, we’ll end up looking something like San Francisco.I was there on a business trip earlier in the year.It’s a beautiful bayside city, with charming trams and cool designer shops.It was an amazing place to visit … from the safe confines of our locked Tesla.

That’s because out the front of these luxury shops were scores of homeless people camping out on the sidewalks.

This is not the Australia I want.Wealth inequality costs society more money in the long run.

It leads to increased crime, overcrowded jails and increased demand for mental health and drug rehabilitation.And if things get really cooked, it can even lead to demagogues like Donald Trump.

My view?

I don’t like government waste, especially when I’m funding it!

Yet honestly, Wayne, would you want your kids, or grandkids, living in any other country?

You and I are wealthy people, living in one of the wealthiest countries on earth.Honestly, how bloody lucky are we?

Scott

The true story of two alpacas

I picked a tough time to change careers:

Last year I went back to study so I could become a community-based financial counsellor.

In January I was sent off to help survivors on the bushfire frontlines. It was the hardest thing I’ve ever done.

Then came corona.

Right now I find myself on the financial frontlines as a counsellor.

Let me tell you a couple of things I’ve learned from sitting across the table from people who are financially broken:

The first hour of the meeting is often a write-off. 

The client will tentatively sit down … and then verbally vomit at me. Nothing makes sense.

That’s because they’re consumed by fear. They’re ashamed about their situation. They feel out of control.

Understand this: no one makes good financial decisions when they’re in a state of fear.

No one.

And, right now, a lot of people are consumed by fear. I can see it in the thousands of emails I’m getting each week.

They stay up late ‘doom scrolling’, which makes them worry about getting sick … and dying.

Or they worry that the economy is going into a recession ... or a depression.

Will we be shut down till June? Or Christmas?

Fear is debilitating. It freezes you up, and shuts you down.

So what’s the antidote?

You need to take action ... alpaca style.

Let me explain (it’s kind of weird):

A few years ago we inherited two alpacas, whose job it is to protect our lambs from foxes.

They’re surly buggers … they’re basically camels without humps, and as aggro as Alan Jones.

When the bushfire came through our farm and burnt most of their flock, a ranger turned up the next day with a gun to finish off the wounded sheep.

The alpacas were wounded themselves. Their burnt hoofs made it hard for them to stand.

But they did.

They shielded their sheep. They stared down the barrel of a gun … and charged at the freaked out ranger.

No one was messing with their flock!

And in a time of crisis, when you’ve lost your income, you need to do the same.

Every dollar you get should go first into protecting your flock:

You put food on the table.

You keep the lights, heating and internet on.

And you keep a roof over your head.

These are non-negotiables. 

If you have money left over you can make repayments on other debts, but these are your priorities.

Here’s how you do it:

First, work out how much your basic needs (above) realistically cost each week. Write down the figure.

Second, go through your bank statements and cancel your direct debits and other non-essential payments.

Third, email your creditors, explain your situation, and request a payment extension.

You won’t solve everything quickly, and you shouldn’t expect to. That’ll come later.

Right now, your only job is to protect your flock.

Tread Your Own Path!

I Lost My Job This Week, But I Got This

Hi Scott,

I wanted to get in touch with you to say thank you. I lost my job this week. Previously this would have been a devastating blow for our finances. However, thanks to reading your book three years ago, my husband and I are now in a very strong financial position. We have paid our mortgage down by half, and we have a good amount of Mojo in the bank. Now we are able to focus on our kids in this scary time. Thank you!

Jill

Hi Jill,

What a strong position you’ve put yourself in. Congratulations!

You’ve also made a really important point about focusing on your kids.

Don’t think your kids aren’t watching you very closely.

Generational attitudes to money are being forged around the family dinner table right now.

So let them know you’re in a decent financial situation because you sacrificed in the good times.Drill it into them.

You’re sorted, Jill, but what about all the parents reading this now who are really stressed about their financial situation. What should they do?

Well, some parents will try to shelter their kids from the financial reality of this situation.

Yet kids are smart: they pick up on what’s going on.It’s okay to be worried. Just channel that fear into something that will serve your kids, like saying to yourself: “Things may be tough now, but we’ll get through it. And never again will this family be financially vulnerable. It starts today.”

You got this!

Scott

Should I Pause My Repayments?

Hi Scott,

I haven’t lost my job due to the coronavirus (I have a stable public service job), but I’ve seen an option from my bank to freeze my home loan repayments. Would it be a good idea to build up a bit of extra cash in this uncertain climate?

Adrian

Hi Adrian,

You’re right, banks and other lenders are offering their affected customers the ability to stop making home loan repayments for up to six months. I’ve seen some people describe it as a ‘pause’ or a ‘repayment holiday’.  It is neither. It is the financial equivalent of being stuck in a taxi while in a traffic jam: You’re not going anywhere, but the meter’s still running.

The interest on your debts, and the fees and the charges, are all still ticking over.  Tick, tick, tick. Understand this: your debt is growing higher each and every day you delay.

My thoughts?

Now is not the time for you to forget about where you’re going, suck your thumb, and look aimlessly out the window. Instead, it’s time to focus relentlessly on your final destination: getting the banker off your back and becoming debt free!

So, if you’re still employed, you should consider making extra repayments.

Here’s why: As a result of this crisis, the Reserve Bank has slashed interest rates to the lowest level in history. Even better, they’ve said that they could stay at these ‘emergency levels’ for the next three years. In other words, this is an amazing opportunity for you to smash a huge amount of debt over the next few years.

Just remember that when it comes to the banks there’s no free ride, mate!

Scott

Super Strange at Hostplus

Scott

I’m a 27-year-old with my super in Hostplus. I got an email from them talking about ‘unlisted assets’ which to be honest made no sense at all. Can you please break down what this means for me as someone with my super in the Indexed Balanced Fund.

Grace

Hi Grace,

My guess is that they’re talking about their Balanced Fund, which has a lot of unlisted investments (i.e. they aren’t traded on a stock market).

None of this applies to you.

Since you’re in the Indexed Balanced Fund (like me!), you have zero exposure to unlisted assets.

Now, I know the funds sound the same, but they are very, very different beasts.

Let’s compare the pair:

The Balanced Fund has high fees … in excess of 1%.

The Indexed Balanced Fund has very low fees … it’s the cheapest pure play index fund in the country, with fees at 0.05%.

(That’s more than 20 times cheaper.)

The Balanced Fund has 37% of its investments in illiquid investments that are hard to price, and hard to sell in a pinch.

The Indexed Balanced Fund is a very transparent portfolio, made up entirely of index funds, which are priced every business day. There’s a lot of uncertainty right now, but you don’t need to worry about unlisted investments. And that’s because you don’t own any.

Scott

Reminder: I first wrote about this years ago and highlighted the low fees. Today there are cheaper index super funds on offer. How do I know? Because my readers constantly email me about them! So before you do anything, go to YourSuper.gov.au and compare super funds first.

Starting in the Share Market … By Raiding My Super

Hi Scott,

Now that we can take money out of our super, can I run a plan past you? I am thinking of taking out the maximum $20,000 from my super and using it to buy a mixed bag of shares, since the market has fallen so much. I am 34, so there is plenty of time for it to compound. The value would grow like it was still in super but without all the fees and charges, right? Thanks,

Jane

Jane,

No, No, No, No, No, No, No … just freaking NO.

Jane, you’re doing it all wrong.

Your question is taking me to a bad place where I haven’t been for a good 12 months.

Seriously, I knew I was in trouble when my mum rang me last year and scolded me:

“Scott, I think you’re being a little rude to your questioners lately.” True story.

Since then I’ve been chanting ‘serenity now’ affirmations when people ask me what I politely refer to as ‘Bob Katter questions’.

But you’ve really tipped me off. I feel like I’m John McEnroe on a line call: “You cannot be serious!”

You want to take money out of your super, where it’s taxed at an incredibly low rate.

Where it’s protected from bankruptcy.

Where you’ll eventually retire and pay ZERO tax...… And you want to put that money into shares in your own name?

Where you’ll be taxed at a higher rate.  Where you’ll likely pay higher fees.Where you’ll probably one day scratch the itch and sell them, then ‘invest’ the money in a banana lounge from Harvey Norman because it’s on sale.

No, Jane. Just no.Here’s what I want you to do:

Do NOT touch your super.

Fact is, you are already investing in shares — via your super!If you’re going to do anything, just make sure you choose a super fund with ultra-low fees.

And that’s the same advice I give my beautiful mum.

Scott

Kindness Goes Viral

Hi Scott

After watching the news this week I am feeling stressed about the whole virus thing (though not financial stress, thanks to you!). I was feeling for all those who have lost their jobs this week, and wondered what I could do to pay it forward. I ended up putting all the cash I had in my wallet (a total of $150) in an envelope, and writing a note to our local pharmacy. I asked them to take it to pay for some medication for one person or five — just someone who is doing it tough, the pharmacy’s choice. I hope it will brighten someone’s day. It certainly made me feel better.

Leslie

Hi Leslie,

Thank-you for being such a generous, kind person and helping people in your community. And thank-you for brightening my day. This too shall pass. You Got This.

And thank-you for reading.

Scott

There’s Always Someone Doing it Tougher

Hi Scott,

I’m a flight attendant who has just been laid off. It’s a bit scary not knowing when or if I’ll get my job back, but thanks to you we’re okay for now — we have Mojo enough to last us for several months. I also watched your bushfire doco, ‘The Road to Recovery’, the other day. It’s a really good dose of perspective that there are a lot of people doing it tougher than me. So I just wanted to thank you for all the good work you do.

Kaye

Hi Kaye,

You’re absolutely right … Now is the time for some much needed perspective. I got mine last week, before the lockdown came into place, when I travelled to the fire-affected community that I’ve been volunteering as a financial counsellor. 

Think about this for a moment: it’s been three-months since the bushfires. We know from experience in previous disasters that it’s at around this time that mental health issues start to surface … and now they have to socially isolate and stay home alone. 

The locals I met with told me they (quite rightfully) feel like Australia has forgotten about them.

It’s a disaster in the making.

Scott

Are the Banks Going to Collapse?

Hi Scott,

Do you think any of the banks could collapse? I've heard people saying we should remove our savings. Won't that make their closure more likely? What's your advice? 

Brad

Brad,

I’ve been getting this question a LOT this week. It’s actually quite understandable in the current environment where people are being tasered for toilet rolls. However, the answer is ‘no’, I don’t believe the banks are going to collapse. And even if one did, the Government stands behind them with its $250,000 guarantee on authorised deposit-taking institutions. So there is no need to start stashing your cash alongside your toilet rolls. 

Scott

The Payday Lending Pandemic

Hi Scott

As instructed I sent an email to the Honourable Mr Michael Sukkar about putting a muzzle on payday lenders. I’ve never told anyone this because it’s embarrassing, but I once fell victim to these predators when I was struggling financially. Then I found your book and got back on track. So while I'm worried about getting COVID-19, financially, I'm as healthy as I can be. And for that I thank you.

Linda

Hi Linda,

Well done for getting back on your feet, and for sending an email to the Assistant Treasurer, who is the responsible Minister for implementing reforms on Payday lenders.

Right now we’re facing a payday lending pandemic, as millions of Aussies stress about their finances.  And these predators are marketing their loans heavily on social media: ‘Need instant cash? Approved in 60-seconds!’.

(Fine print: interest rates for a one-month loan, 407.6% per annum).

Once you sign up, they use sophisticated screen-scraping technology, which allows them to time their direct debits to scoop in and take any money that hits your account ... before it can be spent on food, medicine or school books. Then they offer another loan, and the cycle repeats. Right now the Government is taking bold steps to protect our health -- and we need them to do the same to protect our most vulnerable families financial health.

My view? At the very least, Payday lenders should be temporarily put out of business, for as long as we’re out of business.

Many of my readers agree: this week I’ve received thousands of emails from Barefooters in support, so I can only imagine how many Sukkar got. Yet sadly, at the time of writing, I haven’t heard from him. Perhaps the highly paid lobbyists that these payday lenders employ really have won.

Scott

How to grab a quick 20k, but is it painless?

Truth be told, Australia was one of the least prepared countries for this crisis.

That’s because the average Aussie household is shouldering some of the highest household debts in the world, and has skint savings: half of us have less than $7,000 in the bank, according to the Grattan Institute.

So for those people who have lost their jobs or their small businesses, the government is offering you a gamble:

They’ll let you take up to $20,000 from your super, tax free, to live on.

(Specifically, it kicks off with $10,000 in mid-April, then you can request another $10,000 in the new financial year.

To access the dough, you need to be: unemployed, or getting a Centrelink payment like youth allowance, or have had your working hours or business income reduced by at least 20%.)

On the upside, you’ll have money to tide you over for the next few months.

On the downside, you could be putting your retirement at risk.

So, what should you do?

Well, with a hat-tip to the late Kenny Rogers: “If you’re gonna play the game, boy, you gotta learn to play it right”.

There’s a saying in poker: you’re not really playing the cards … you’re playing the other players.

So, let’s see who’s sitting around your table.

First, you’ve got your bank. They’ve been dealt a really bad hand. That’s why they’re giving their affected customers up to a six month ‘pause’ on their home loan (and in reality, all their debts).

Next to them sit your utility providers and telcos, who will offerpayment arrangements.

Finally, there’s your landlord, who looks like they’ll be forcedto go easy on renters who are in financial difficulty.

In other words, if you’ve lost your income, you can put on your poker face and call their bluffs.

All you need to do is contact their hardship department (pro tip: email them, their phone lines will be jammed), and explain your situation, preferably with written evidence. 

So, should you still take the $20,000, just in case?

Well, the Gambler advises “you never count your money while you’re sitting at the table”.

But I don’t agree.

See, you may think you’re cashing in $20,000 of your super money, but you’re really not:

If you’re 45 years old, that $20,000 would be worth $50,000 by the time you retire.

If you’re 35 years old, it’s an $80,000 decision.

And if you’re 25 years old, you’re really gambling with $132,000!

Why?

Because you’re cashing out your investments during a share market crash, where the price of stocks are 25% cheaper than they were a few months ago. You’re selling out cheap. And history tells us that over the long-term the stock market always goes up — through panics, pandemics, wars, depressions and recessions.

Always.

Still, I was curious to know how popular the Government’s proposal would be.

So on the weekend I asked people on Facebook: would they be touching their super because of coronavirus?

Drumroll ...

Some 64,000 people were so utterly bored that they took the time to vote on a poll on … err …  super.

Yet what’s encouraging is that the vast majority of them said ‘no’ — they wouldn’t touch their super.

For them, the long-term stakes were too high … and instead they’d decided to fold and walk away.

Of course, that doesn't help you if you’re a hospitality worker and you’ve got to put food on the table.

Your kids can’t eat compound interest.

Yet before you cash out part of your retirement savings, make sure you have exhausted every last option available to you (including eating baked beans for a month or two).

Remember, this crisis will likely last a few months — yet your retirement will last decades.

If you do have to access your super, make a pact with your future self that when you get back to work, you’ll increase your repayments to 15% of your gross wages, so you automatically pay it back.

Do whatever you can do now to avoid a royal flush of your financial future.

Tread Your Own Path!

So I have some bad news

So, I have some bad news.

I’ve spent this week fighting a virus.

It’s dangerous, it’s destructive … and it’s about to explode, and potentially infect millions of people.

Let me explain: it’s a financial cousin of the coronavirus which I’m calling the ‘Payday Lending Pandemic’.

See, this weekend, in kitchens and living rooms across the country, people are stressing out about their finances:

The single mum who works as a waitress, who just had her hours cut, and has no food in the fridge to feed her kids.

The small business owner who sits with his wife, worried about how he’ll pay his loyal staff and make the rent.

The father who drives an Uber to feed his family, who gets a nasty cough — but has no sick pay or entitlements.

They’re all terrified.

Yet there’s a small group of multi-millionaire businessmen who are rubbing their greedy little hands with glee:

Payday lenders.

See, up until now they’ve made their fortunes by preying on the mentally disabled, the addicted and the sick.

Yet this corona crisis is about to open the payday loan market up to millions of brand-new customers.

In a moment, I’m going to ask you — yes you — to help me stop them. But first I want to explain how dangerous and contagious this Payday Lending Pandemic is:

This week the Reserve Bank cut the cash rate to 0.25% ... yet payday lenders can legally charge their customers an outrageous 407.6% per annum (not a typo) for a one month loan.

And, while they’re marketed as ‘short-term loans up to $2,000’, the reality is these loans are designed to put vulnerable people into a long-term debt spiral, where one loan is used to pay off another. And another. And another.

After all, the payday lenders know that when all else fails they have a guaranteed payer:

You.

Or, more accurately, Centrelink (which we collectively pay for through our taxes).

The payday predators can swoop in and snatch their clients’ Centrelink payments before they can spend it on food, medicine or schoolbooks. And that’s exactly what they do (they also pull the same trick with people’s wages).

Okay, ready?

Now I’m going to make you feel really angry.

The Government knows that payday lending and consumer leases (hello Radio Rentals) are on the nose.

And that’s why, four-and-a-half years ago, they decided to do something about it.

So they launched … drum roll … a REVIEW.

Bam! Pow!

And surprise, surprise, that review came back and recommended that these mongrels have a muzzle put on their lending practices, otherwise known as the Small Amount Credit Contract reforms (SACC for short).

Done and dusted, right?

Oh, no, no, senor!

In fact, the Government has sat on the recommended reforms for nearly four years, and as late as last week they said they still need more time to consider.

What the hell is going on?

I’ll tell you what the hell is going on.

The businessmen who own these payday lending outfits are seriously rich, and seriously powerful.

In fact, they’re so rich, and so powerful, that they employ an army of lobbyists to influence our politicians.

And these lobbyists are good.

They’ve tied this thing up in knots for years and NOTHING has happened. Which is exactly what they’re paid to do.

Meanwhile the payday lenders can continue making hundreds of millions of dollars off the backs of battlers.

And here’s where it gets downright disgusting:

With the corona-crisis, the Government is (rightly) handing out billions of dollars in an effort to stimulate the economy and look after society’s most vulnerable.

However, some of this stimulus will actually end up stimulating the pockets of the multi-millionaire payday lenders.

That sucks, right?

Now of course there have been some heroes — not-for-profit consumer advocates — fighting the good fight against these predators, and their lobbyists.

Truthfully, though, it’s like they’ve been in the ring with Mike Tyson … for almost five years. 

I met up with one of these battle-scarred boxers — Gerard Brody, CEO of the Consumer Action Law Centre.

“After all this time we’ve almost given up”, says Gerard.

“We can’t even get so much as a meeting with the responsible Minister. The Assistant Treasurer, Michael Sukkar, is in charge of implementing these reforms, but it feels like he just doesn’t care.” 

So the lobbyists have won, right?

Wrong.

Ding, ding — it’s time for you and me to get in the ring.

We may not be able to do anything about this damn coronavirus, but we can sure as hell wash our hands of this Payday Lending Pandemic. Even better, I’ve found us a vaccine, and his name is the Michael Sukkar MP.

I just reckon the honorable member needs a little reminder of just who he’s working for.

We the people.

So, given I’ve been ‘social distancing’, I’ve had a bit of time on my hands. Maybe too much time. Enough time to track down his personal email address:

Michael.Sukkar.MP@aph.gov.au

Now here’s where you come in.

I need you to send Michael Sukkar an email right now.

In the subject line you could write: “Look after the little people, not the lobbyists”.

And in the body of the email you could write: “Do your job and put a muzzle on these mongrels right now!”

Now look, I don’t want to be a hater. I honestly believe that every politician — on both sides of the aisle — wants to look after Aussies who are under a huge amount of financial stress right now. And I know that if enough people email Michael Sukkar this weekend then he’ll take notice of us.

I’ll be back next week to answer all your questions about the corona-crisis. And I genuinely hope that, when I do, I’ll be able to tell you that millions of hard-up Aussies have dodged the Payday Lending Pandemic (even if we have to blow up the Government’s email server to do it).

It’s time to wash our hands of this pandemic — and if there’s anyone up to the job, it’s Michael Sukkar.

Tread Your Own Path!

P.S.  If you’re reading this you’re probably in social isolation, so you too have some time on your hands. Instead of reading scary headlines, let’s make some ourselves.

Please, spend 30 seconds — right now — and send an email to Michael.Sukkar.MP@aph.gov.au.

As a society we will be judged by how we look after our most vulnerable.

Let’s fight for them.

What To Do When You're Terrified

I live a very privileged life.

See, I spend my time on my farm, in the middle of nowhere, with my family.

Out here, everything is pretty calm (well, as calm as things can be with three kids under six.)

That changed on Thursday night.

The corona-crisis meant I had radio interviews booked solid forFriday, so I decided to spend the night in the city. And, since my family wasn’t with me, I thought I’d take a walk through the streets of Melbourne --at 10pm, alone.

It was a surreal experience.

I could feel that something wasn’t right … something had changed.

People hurried past me wearing face masks.

I overheard snatches of concerned conversations left and right, talking about the coronavirus.

On my walk, I passed three supermarkets. Out of curiosity, I looked inside. Each one had been pillaged — there was no toilet paper, no tissues, no hand sanitiser.

At the Woolworths on Elizabeth Street, a staff member told me, “We only got two packages of toilet paper earlier this evening, and they both sold in seconds”.

I returned to my room and went to bed just as the US share market opened — and it soon halted trading as shares went into free fall. This hasn’t happened in decades  … yet this week it’s happened twice. The next day I woke up to find that Wall Street had seen its biggest share market crash in 32years.

Make no mistake: these last few weeks will go down in history.

Our grandkids will look back on this period of market madness -- where people were tasered for toilet paper and the markets lost a quarter of their value in three weeks.

And so this week I’m breaking my own rules and devoting my entire column to just one question.

But it’s a big one (and I’ve received hundreds just like it).

Subject: I’m Terrified!

Dear Scott,

I am in my late fifties and am terrified by the current coronavirus climate. I have my own super fund and it’s dropped $40,000 in the last fortnight, from $370,000 to $330,000. I know what you are going to say -- sit tight! -- but every fibre in my being is screaming ‘sell!’.

Anne

Okay, so a few things you need to know before I answer Anne’s question:

I’ve changed her name.

And it’s a few weeks old, so her super would presumably be down much more than $40,000 by now.

Finally — and most importantly — I’m not going to be an investment jerk and just cut-and-paste some Warren Buffett quote about ‘focusing on the long term’ (from an 89-year-old, no less).

After all, it’s one thing to point to a chart … and totally next level to see $40,000 (and counting) disintegrate before your very eyes.

The fear people are feeling right now is real, and very raw.

So to Anne’s question:

Anne,

You’re facing some tough decisions, so I want you to take a few deep breaths and walk through them with me.

Make no mistake, the past three weeks have been emotionally harrowing, especially for older people.

The thing is, you’ve framed your question as ‘either/or’:  either sell and stop the losses, or hang on and hope it gets better.

Yet it’s more complicated than that …

Let’s say you make your investment decisions like a mad shopper in Coles, hurtling down the aisle and hip-and-shouldering a five-year-old girl out of the way to claim that last pack of sweet-ass Sorbent.

In other words, you’re so panicked by the ‘global recession’ headlines that you sell your super investments and move all your money to the ‘safety’ of cash.

Job done, right?

Well, no.

Here’s what happens next:

By selling out, you’ve ‘locked in’ your losses — at a time where the sharemarket is down 25% in three weeks.

In other words, you’ll miss out on the massive upswings that history tells usoccur, eventually, after every crash. You’ll have effectively switched thecompound interest machine to ‘off’.

But it gets worse ...

The tax man will come knocking on your already wounded portfolio. 

In other words, you’ll have to pay capital gains tax (CGT) of 10%if you hold your investments longer than 12 months, but 15% if held for lessthan 12 months.

And worse still ...

Your super will now be parked in cash, and it’ll therefore be guaranteed to lose you money each year.

Why?

Because prices rise faster than your money earns in interest (otherwise known as ‘inflation’).

Think of it as the financial equivalent of standing in quicksand: each year you sink a little lower.

Here’s you: “Well at least I won’t be watching my money go down the toilet before my eyes!”

Here’s me: “I completely understand where you’re coming from, and I’ve heard it all before.”

Specifically, back in 2009, in the depths of the GFC, I had retirees writing to me saying the exact same thing.

Quite a few of them sold their shares, deciding to wait till the coast was clear before they got back into the market.

You know what?

They’re STILL waiting for the coast to be clear …

And here’s the thing: I can tell you after 20 years of being in the investment game that the coast is never clear.

Truth be told, the thing that makes the stock market so scary is that you can’t control it ... as we’ve seen this week — it’s driven by the same people who hoard Sorbent and rice for a 14-day cleanse.

So, Anne, let’s instead focus on some things you can control:

One, make sure you’re in a low-cost fund with the right asset allocation for your age (if you’re unsure, it’s a good idea to sit down with a fee for service financial advisor and check).

Second, once you’ve done that, just STOP LOOKING AT YOUR SUPER. Granted, it sounds simple, but it works.

(It’s a bit like watching Married at First Sight — instead of getting all riled up at the antics of badly behaving bogans, just switch off the telly.)

Third, you can put your investment decisions on autopilot: you can actually take advantage of these market falls while you’re still working by automatically saving MORE money into your super while shares are cheaper (talk to your fund).

And finally, in the years before you’re about to retire, begin building up a cash buffer of around three years of living expenses (less any pension payments), so you can ride out any market bumps — like this one — without having to sell.

Anne, I can’t guarantee where the share market will be in a year or two. No one can. Yet what I can tell you is that the biggest risk you face is not the short-term movement of the share market — it’s having your super eaten away by inflation.

Don’t flush your retirement down the toilet!

Tread Your Own Path!

We Got This!

Dear Scott,

I want to thank you for the concept of ‘Mojo’. Mojo allowed me to fly immediately from Brisbane to Melbourne to be with my 95-year-old Gramps when I was told he had only 24 hours left. He held on for five days (he was always stoic and slightly stubborn!), then slipped away quickly, simply and peacefully. I feel honoured to have been able to be right next to him as he passed — it is one of the best experiences of my life. It is vital to NEVER underestimate the power of Mojo — it means so much more than just some dollars sitting in an account.

Brenda

Good on you, Brenda!

To be in the financial position to down tools and be with your family when they need it is what having Mojo is all about. Those are the moments that really matter in life. Thanks for sharing your story — my hope is that it inspires others. 

Scott

Beware the Killer Chihuahua

Hi Scott,

My wife and I are both in our early seventies, retired, and have just been given another ‘pay cut’ on our term deposits, courtesy of the Reserve Bank! I have two questions:

1) What are your thoughts on current interest rates?

2) I have half my money ($600,000) in term deposits paying a pitiful 1.5% with Bendigo Bank. What are your thoughts on moving them over to Mayfair Platinum term deposits, who are offering 5.45%?

Bruce

Hi Bruce,

You’ve asked two fantastic questions that many people are asking themselves right now. So let me answer with an admittedly weird analogy:

For me, the current level of interest rates (0.5% — the lowest on record) is a bit like camping out in the bush.

You’ve spent the day shooting your rifle at random tin cans and the like, wasting your bullets.

Night falls and you hear something rustling in the bushes: what the hell is that? A killer bear?

But you only have three bullets left.

Scared witless, you fire one off into the darkness and hope you hit whatever is making the noise.

Now you have two bullets left.

Let me explain: the bullets are interest rate cuts, which are designed to stimulate the economy. And the latest cut the Reserve Bank fired off this week will, in my view, prove to be about as effective as shooting randomly into the darkness. If anything, it’ll just serve to scare your fellow campers.What happens if there really is something bad in the (economic) bushes? Will we have enough bullets in the chamber to defend ourselves?That’s my worry.

Now, to your second question: should you move your money over to Mayfair Platinum, who are offering 5.45% on their term deposits?

I’ve written about Mayfair Platinum before. They’re heavy advertisers, and in the past have used a cute little chihuahua as their mascot. I explained how they have snapped up some (in my view) very questionable offerings, including Dunk Island (an island south of Cairns that was wiped out by Cyclone Yasi in 2011), various cryptocurrency-related companies, a food app, and a host of other investments across the world.

For my answer to your question, then, let’s keep going with my camping analogy.

You’re worried the noise in the bushes might be a killer bear. But it’s not. In fact the cutest little chihuahua comes trotting out. It cuddles up to you by the campfire and lovingly licks your face while you drift off to sleep, confident that everything is going to be a-okay. That’s Mayfair Platinum.

And then, in the middle of the night, it bites your face off.

Scott