Banker Bait

Dear Scott,

My 18-year-old daughter lives at home, pays no board, works full time, and is saving for her first property. She also wants to buy a new car ($20,000) so she can get a credit rating, which will make it easier to get a home loan. Should she keep driving the old car and put all her money towards the house deposit, or get the car loan and take a bit longer to get into the property game?

Fiona

Hi Fiona,

Congratulations on raising such an ambitious daughter!

Now it’s up to you to teach her some common sense:

Spending $20,000 on a brand-new car will not help her buy a home in any way, shape or form.

Instead, she’ll just end up forking out roughly $30,000 for a car that will only be worth $10,000 in five years’ time.

The idea that you need to take out a loan so a bank will lend you more money is absurd.

Just like Sam Dastyari, the credit reporting agencies have done their darndest to convince everyone they’re more important than they really are.

Now it is true that if you’ve got something bad on your credit file it can be a red flag to lenders. But for a cleanskin, like your daughter, it’s really not a big deal.What is a big deal for lenders is:

1) a stable income that can comfortably meet the proposed repayments;

2) a verified savings history; and

3) a meaty deposit (I recommend 20%).

If your daughter can tick those three boxes, she’ll get her loan.

Scott

Should I Buy an F45 Fitness Franchise?

Hi Scott,

I’m a 26-year-old woman working full time in a job I hate. Quite frankly, I am sick of working for the man! Now, I have never had my own business before, and I am a little apprehensive, but I love fitness, and I also love F45 (a new high-intensity interval training fitness franchise). It is rapidly growing on a global scale, with 750 studios around the world already. The cost to open a franchise is $150,000, plus $1,700 a month in fees (plus rent, wages, taxes, etc). I do not have the capital, so I would also need to apply for a business loan. Do you think this is a good idea?

Mandy

Hi Mandy,

A mate of mine does F45 -- short for ‘Functional 45-minute’ training -- and fair dinkum he never shuts up about it.

But let’s get one thing straight: if you buy a franchise you’ll still be working for the man -- but in this case it’ll be the ex-finance dude who dreamed up the F45 franchise model. I imagine he’s currently lifting gold-plated barbells from all the money he’s making … and good on him too! All I’m saying is that in this equation he’s the entrepreneur -- and you’re the worker.So, would I buy an F45 franchise?

No, I wouldn’t.

And it’s not because I could risk having a cardiac arrest if I actually did F45 -- it’s because I’ve put the franchise through its paces, just like I would with any investment.

So let’s you and I do a money workout:

First, let’s look at the sector. Australia’s gym market is one of the most competitive and saturated in the world, according to IBISWorld. (Why are we so fat, then? Is it the chicken or the egg? Or maybe it’s the chicken and egg sandwiches.) Simply put, there are a lot of businesses fighting it out for our fitness dollars.

Second, one of the key selling propositions of the F45 franchise is that there’s not a lot to it -- two trainers, four walls, and a bit of equipment. Easy to start … and easy for potential competitors to start too. And what about when ‘F6’ comes out? (Seriously, I could totally blitz 6 minutes of training.)

Third, while F45 is going bananas right now -- the business is just five years old. What will it look like 10 years from now? Fitness is a faddish industry (hello Zumba, Tae Bo, and pole dancing fitness). Heck, F45 is itself a gentler version of CrossFit, which is now reportedly starting to run out of puff.

So, here are a couple of questions you need to ask yourself:

How quickly could you earn back your upfront costs (a $150,000 loan plus $1,700 a month)?

Even better, could you avoid borrowing (which always ramps up the risk and makes life more complicated) and instead -- as we Barefooters call it -- ‘swing on the trapeze’. That is, keep your day job, start a morning and weekend fitness bootcamp, and make a go of it for the next 12 months to test it out. If it’s a winner, quit your job and go for it!

Scott

If you’ve got an ING card, read this

The other day, ING sent me a mass-marketing email with the subject line:

“Scott, refer a friend and you can both get $100.”

Now, given that my book recommends setting up a couple of ING accounts …

And given that my book has sold over 500,000 copies …

And given that ING has just announced they’ve achieved “a record 50% jump in customers this year” …

… why the hell am I even writing to you? Why aren’t I sipping a Bacardi in the Bahamas?

Oh that’s right — old dumbo here doesn’t accept any kickbacks.

To be serious for a second: I have no allegiance of any kind to ING. My only allegiance is to my readers, and I only recommended those ING accounts because they have zero account fees and zero ATM fees, and they pay a (relatively) high rate of interest.

Why am I telling you all this?

Because I feel a responsibility to keep these bastards honest.

And this week ING announced some changes to the accounts.

So I feel it’s appropriate to check them out:

First, they’re now offering zero ATM fees globally (speaking of the Bahamas). Coupled with the fact that ING already offers the wholesale exchange rate from Visa without a clip — which is why I’ve found I get a better rate than with cards from other banks.

Second, and more importantly, they’ve also eliminated international transaction fees on all overseas purchases — a saving of 2 per cent. Big news if you buy online (which somebody in my house seems to do quite regularly).

The fine print is that you need to deposit $1,000 a month into your account and make five transactions — in other words, make it your everyday account. And why wouldn’t you? It’s an all-in-one ripper: good for everyday banking, good for buying crap online, and good for holidays overseas.

Just be warned: do not take their upsell on their sleazy new credit card … after all, that’s what’s cross-subsidising all this fee-free generosity!

Tread Your Own Path!

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.

Can I Trust My Parents-in-Law?

Hi Barefoot,

My parents-in-law (both in their 60s and retired) have put a proposition to my boyfriend, and I am very uncomfortable about it. He is in serious debt, with credit cards and personal loans. In two months they will lose their cheap rental home (they’re renting from a friend, who is now selling the place).

So they want my boyfriend to buy a home in his name for them to live in. They say they will pay him $5,000 a month and cover all other costs. For income they have four pensions -- two for themselves and two ‘carer payments’ they receive for having two people in their 80s living with them. They say it will not cost him a cent, so he can pay his debts and, when they all die, he will have a house. They all think it’s an amazing idea, but alarm bells are ringing for me!

Abbie

Hi Abbie,

Ding! Ding! Ding!

I’m hearing the same alarm bells!

I could be wrong, but it sounds like your parents-in-law have been moved on from mooching off their mate … so they’re looking around for their next meal ticket, which just happens to be your boyfriend.

Make no mistake, they’re looking out for themselves -- not for their son.So, at the risk of being the party-pooper, let me poop all over this plan:

First, retired pensioners can’t underwrite a mortgage -- especially when part of their income is supplemented by carer payments which may go to God at any stage.

Second, it sounds like your boyfriend would have trouble qualifying for a mortgage, given you say he is in ‘serious debt, with credit cards and personal loans’. And even if he can score a loan, it doesn’t mean he should.

What could end up happening is your deeply-in-debt boyfriend becomes your deeply-in-debt husband, and you both end up on the hook providing a home for his deeply dependent parents for for the next 30 years.

Ding ... Dong … don’t do it.

Scott

Ripping Off a Pensioner?

Hi Scott,

My mother received around $300,000 as an inheritance. Being financially illiterate (after a lifetime of illness and living on disability pension), she went to a NAB financial planner, who put her money into a superannuation account with MLC. The good part is she is still eligible for her Disability Pension. The bad part is that NAB charges around $2,500 per year for their ‘advice’, and MLC charges around $3,000. Is it a rip-off?

Chantelle

Hi Chantelle,

There is no way anyone on a disability support pension should be paying $2,500 a year ongoing for advice. (Besides, if your mum is under the Age Pension age, whatever she has in super is exempt from the asset test). What she should do is go and see a free Centrelink Financial Information Services Officer (FISO), who will help her maximise her pension -- for free.

As far as the cost of her super goes, it’s about average: over the next decade, she’ll end up paying over $50,000 in fees. (If people paid their super investment bill the same way they do their quarterly power bill, it’d be a bloody outrage, but it’s all out of sight, out of mind.) If she can ‘fight the power’, I’d suggest she switch to an ultra-low-cost industry fund.

Scott

Million Dollar Payday

Dear Scott,

I am 24 years old and I earn $40,000 a year working part time. Today I received a lump sum of $1,000,000 (after costs) due to being run over by a car seven years ago. I need to pay around $5,000 a year in ongoing medical costs. How should I invest this money, and is it worth setting up a trust and a ‘bucket company’ that reinvests in itself?

Max

Hi Max,

First up, you won’t have to pay tax on the payout itself, but you will pay tax on any investment earnings you earn on it. Now, would I invest the money in a trust and then distribute the investment income to a company?

Possibly. The trust will give you asset protection benefits, and the company acts as a ‘bucket’ to theoretically cap your tax rate at the company tax rate of 30 per cent. But know this: it’ll also gobble up a few thousand dollars a year in fees to your accountant.

However, let’s not put the cart before the horse.I

f I were in your shoes, I’d keep it simple:

I’d buy a nice little unit for cash (say $500,000).I’d put $15,000 into Mojo (high-interest online saver account).

I’d put $25,000 into term deposits with different maturities to cover any medical costs within the next five years.

I’d also kick $25,000 into your super.

Then I’d invest the rest ($435,000 or thereabouts) into good-quality Aussie shares (either via a trust, or in your own name), tick the ‘Dividend Reinvestment Plan’ option (so your dividend earnings are automatically reinvested rather into more shares), and let your money compound.

Scott

10 Years Without Money

Hi Scott,

Ten years I have been a monk and therefore ten years without money. Now, at age 52, I am leaving the monastic life and coming back into the regular world. (Scott, I notice you are a bit older, wiser and chubbier than when I last saw you on TV all those years ago.) I am earning $52,000 a year but have no assets or savings. I am not sure I will ever have the chance to buy a home, but I would really welcome your advice on how to build up some wealth. The world has changed a lot, I see.

Doug

Hi Doug,

My wife calls me her ‘Barefoot Buddha’ (mental note, when your wife and your work are commenting on your chubbiness, it’s time to hit the gym).

Anyway, you’ve got a couple of good things going for you:

First, you don’t have a wife, or children, so you can focus 100 per cent on yourself.

Second, you’ve spent the last decade without an iPhone, a butler’s pantry, or KFC. In other words, you’ve broken the chains of materialism!

Having said that, you still need financial security, so your priority should be to increase your income so you can sock away three months of living expenses in a Mojo account.

And the house? Well, if you’re willing to move to a rural area, you could eventually afford a cheap home, too. (They’re cheap in Manangatang, and if you can stick it out in monastery, you’ll be a shoo-in for Manangatang.)

Remember, you’ve got at least 20 years of full-time work ahead of you. Repeated studies have shown that, once you earn over $75,000 a year, money doesn’t make you any happier. But you’re only earning $52,000, so you have $23,000 worth of happiness to gain!

Thank you for reading

Scott

Three Is Enough, Barefoot!

Dear Scott,

You seem like a smart guy, but I think your wife is even smarter in wanting to limit the number of children you have to just three. The environment is freaking out, and curtailing the number of children born into our consumer society is one of the greatest contributions anyone can make. And all that money you save by not having those kids can be donated to worthwhile charities that help the environment, animals and people instead!

Jessica

Hi Jessica

You must be a real hoot at a baby shower.

I’m naturally an optimist, and on almost every measure right now is simply the best time in history to be alive.

Case in point: in his book Abundance: The Future Is Better Than You Think, Dr Peter Diamandis reveals that in the past century the average lifespan has doubled, and the average income has tripled. At the same time, food is 10 times cheaper, electricity is 20 times cheaper, transport is 100 times cheaper, and communications are 1,000 times cheaper!

Besides, a wise person once told me “no one ever regrets the kids they have … only the ones they don’t”.

Scott

Should I Sell My Investment Property?

Scott, I’m torn!

Back in 2008 I bought my first home for $126,000. I have paid it off since then and started renting it out in 2012, when I moved into my husband’s home. My rental property is now worth about $150,000 and, to be honest, I do not think it is ever going to rise much in value. The only upsides are that it is relatively easy to find tenants for it ($220 per week) and I make about $5,000 a year from it. I am considering selling and using the proceeds to invest in shares, and to renovate our home. Or should I just keep it? It would be nice to rent it to a single mum with four kids!

Ally

Hi Ally,

What an awesome achievement!

In years to come, how powerful would it be to show your kids -- especially your daughters -- the home that Mum saved up and bought on her own, before she met Dad? Who cares if it’s a poky little joint? Stories are powerful, especially for kids.

Having said that, if you’re not emotionally invested in the property, I’d probably sell it, cop the tax, and move on.

What tax?

Well, it’s likely you’ll be up for capital gains tax (CGT), though you’ll only pay it on any gain you’ve made since 2012 (when you moved into your current home). Better yet, that capital gain will be further discounted by 50 per cent as you’ve held the property for over 12 months.

So why sell?

Well, you’re already questioning the likelihood of future capital gains, and you wouldn’t hold on to it just for the 3.3 per cent rental yield ($5,000 a year). Besides, let’s face it, being a landlord can be a triple pain in the rump -- hello renters, repairs, and real estate agents.

If I were in your shoes, I’d sell the place, make a tax-deductible donation to a woman’s shelter in your area, spend as little as I could on renos on your current home, and put the bulk of it into super.

Scott

Amazon wants the keys to your house.

Oh, and the retail giant also wants to install a camera at your front door to track people coming in and out.

Seriously.

‘Amazon Key’ is a security camera and locking system that lets you get deliveries inside your home when you’re not there.

Here’s how it works:

When the Amazon delivery driver arrives at your front door, he (or she) scans your package. If the package is approved, the door unlocks, and the camera starts recording. Now here’s the cool part: you can watch the delivery driver from your phone … and apparently even talk to them:

“Put the ice-cream in the fridge please cobber.”

After the driver has dropped off the package, the door automatically locks behind him. (And if you’re busy working you’ll get an email with a recorded video of the drop-off.)

Amazon Key costs $249 and is currently available in 37 cities across the US — but if it’s successful you can be sure it’ll be quickly rolled out here in Australia.

Righty-o. So what does this all mean?

First point: this is just another reason that Amazon is fast becoming the ‘everything store’.

In the coming months Amazon Home Services is rolling out 1,200 different services — from cleaners to dog walkers — who will all sync into the Amazon Key system.

The bottom line for Aussie businesses is brutal: if you don’t have the chops to compete globally, then the best companies in the world will eventually come Down Under and cut your lunch (and most likely deliver it by drone).

Second point: is this ‘1984’?

Are consumers seriously going to allow a conglomerate to set up a camera in the privacy of their homes?

Sure!

In fact, Amazon Key perfectly complements Amazon Alexa, the voice-activated speaker that is constantly listening in to your conversations (and awaiting your Amazon orders), and the cute-looking Alexa Alarm Clock, which has an in-built camera and microphone (in your bedroom!).

Yeah, but what about letting strangers into your home?

Well, think about the intricate security system most of us have now: you keep a spare key under the doormat so that Sally (surname unknown) — the cleaner you met for 10 minutes as you showed her through your pigsty of a home — can get in. Good old Sally wouldn’t use your toothbrush to clean the toilets, right?

… Hang on, give me that security camera!

Tread Your Own Path!

Romantic Comedy or Horror Movie?

Hi Scott,My partner comes from a wealthy family. We are engaged, are having a baby, and have joint finances. Four years ago he was briefly engaged to someone else and he bought a house with a $50,000 inheritance from his grandfather. At the time, he and his parents agreed to a caveat to protect his asset from her. Wise move, and it worked. Fast forward to now, and I have been jointly paying for this same mortgage for a long time, on my wage of $110,000 a year. We want the caveat removed; they don’t. Advice?

Tess

Hi Tess,This sounds like the plot of a made-for-TV romcom. You meet the man of your dreams, but his meddling parents don’t approve of you!While I’m only getting your side of things, here’s what I’m reading:One: it was originally your fiancé’s inheritance, so it’s his money, not his parents’ money.Two: you’re now helping pay off the mortgage, so your name should be jointly on the title, if it’s not already. What’s more, if you can get the caveat lifted, you may find that you can get a cheaper deal on your mortgage.Three: the difference between you and his last squeeze is that you’re pregnant with his child -- their grandchild.In other words? Dude’s on the hook for 18 years, as Kanye would say.Besides, in the grand scheme of things, $50,000 isn’t a huge amount of money -- it’s more about the principle of your in-laws treating you like a fly-by-night floozy who’ll one day shake down their son.My advice? Just like in all good romcoms, your fiancé needs to stop being a mummy’s boy, stand up to his parents, and defend your honour!Thank-you for reading,

Scott

‘Zero Balance’ Is a Trap

Hi Scott,

I need your help as I am 34, on maternity leave and near broke … though still inspired by my five-month-old baby. I should be secure, relaxed and focusing my energy on the bub (despite the sleepless nights). The trouble is, in my 20s I racked up credit card debt to the value of $7,000. Years ago I took out a ‘zero balance’ transfer to another bank and it has now grown to $17,000! I am ashamed, but have come clean about it with my partner. He just handed me your book and I am now in ‘debt domino’ mode, gradually paying it down on my $88,000 wage. But what else can I do?

Natalie

Hi Natalie,

Well done for facing your debt demons. Trust me, everything gets easier from here.

Doing the Debt Domino (paying off your debts smallest to largest) will build up your self-confidence while systematically knocking down your debts.

However, before you start knocking down the dominoes, I’d like you to check how long it’s been since you made a repayment. Reason being, if you haven’t touched it for six years you may find that it’s a ‘statute-barred’ debt and you may not be legally required to repay it (note: your credit rating will be shot if you don’t pay, but that will eventually go away too).

Now, do me a favour and pass me over to your partner. Go on, do it. I’ll wait. Hey, Champ!

Well done for giving your partner my book -- it’s a great first step, but you need to do more.

See, this amazing woman is not only the mother of your children, but your partner in life. You need to work together on knocking out these debts as a team. There’s only upside for you: first, you get out of debt quicker; second, you build strong financial habits that will ultimately change (or prune) your family tree; and third, you’ll have a happier wife … and a happier life.

Scott

How Should I Save for My Baby?

Dear Barefoot,

Firstly, I want to say thank you. I have been following the Barefoot system and this year my husband and I got pregnant with our first child! I am self-employed and had planned to work until a few weeks before he was due and then take advantage of government maternity leave. But he had different plans and arrived 10 weeks early; he’s still in the hospital ICU but thankfully doing well. More so, thanks to your book, we have two months of living expenses saved up and therefore can focus on our amazing little man rather than worrying about work. My question is: a friend has suggested that, rather than buy him gifts, we should drop some money into an account for him -- is Westpac’s ‘Bump Account’ worth looking into?

Emma

Hi Emma,

I don’t know what you’re thanking me for -- you did all the hard work.

(Then again, I have always said that Barefoot Date Nights are a wonderful aphrodisiac … and given we’ve sold 480,000 copies … that’s a lot of lovin’ going on.)

Now, to your question.

The Westpac ‘Bump Account’ really should be called the ‘Dump Account’, because it seriously has a stronger stench than your little one’s nappy.

Here’s how Westpac puts it:“On our 200th anniversary, every child born in 2017 is eligible for $200. If your parent opens a Westpac Bump Savings account in your name, we’ll deposit $200 into it which you can withdraw when you’re 16.”

Okay! Let’s rip off that soggy, boggy nappy off!

First off, you (the parent) have to wait 16 years to get the money.

Second, you’re dropping your kid into the bank’s sophisticated marketing funnel -- which will go into overdrive when they’re 16, rebellious, possibly Emo, and desperately lusting after a new iPhone 24.

Third, the interest rate they’re offering is trickier than a teething poo:

The base interest rate is a stinker 1.5%, and to get the advertised rate of 2.3% you’ll need to make a monthly deposit, ensure your account balance is higher at the end of the month than at the beginning, and keep your balance above $0 at all times.

Finally, and most importantly, if you’re saving long term for your kids, you’d be better off investing the money into shares via a low-cost index fund or a listed investment company (LIC).

In other words, dump the Bump -- your kid can do better!

Scott

My $297,641.32 … errr, investment?

The first time, my wife flung her arms around me and, through tears of sheer joy, whispered “we’re pregnant”.

The second time, she raced up behind me and squealed with delight.

The third time, she pushed open the bathroom door, locked her eyes on me, and pitched the plastic preggo stick square at my noggin. (To be fair to her, it was a Friday night and I’d just got home from the pub … so I wasn’t exactly on my A-game.)

That was twenty-two weeks ago.

For the record, we’re over the moon to be having a new baby … it’s just that Liz was wanting a few months before going back into the ‘baby bubble’. (Fun fact: at our pre-marriage counselling session, Liz put down that she wanted three kids … I put down six. Time will tell who wins.)

Here’s one thing I do know: unlike buying a slab of beer, it doesn’t get cheaper the more kids you have. According to a study by Suncorp, the average Australian parent spends $297,600 raising a child to age 17.

Hang on — $297,600? That’s a very specific number. Maybe Simon from Suncorp followed Junior around with a Casio every day of his life. And then on his 17th birthday Simon hit ‘equals’ and triumphantly announces, “You cost me $297,641.32! But hey, I’m your dad, so let’s round it down to $297,600.”

Either way, it’s a huge number.

Worse, Suncorp’s research suggests it costs $984 per month for the first two years of your child’s life. That’s a huge whack of dough for any young family, let alone for those of us who want six kids (no wonder Liz threw the stick at me!).

So in celebration of our currently baking baby, this week I’m answering questions from new parents and parents-to-be.

Tread Your Own Path!

Burning Through the Bucks, Baby

Dear Barefoot,

I am 35 and engaged to the most generous guy, who I love. But we have spent $31,000 in two months! We earn $330,000 p.a. combined and have equity of $850,000 in our two properties, which we will sell next year so we can get a nice home with a small mortgage. Recently I did an audit and found we had spent $31,000 on … nothing! Meals out, weekends away, events at home, clothes, bond, removalists, some double rent for a period. I want to be debt-free in five years. Kick us up the pants!

Amanda

Hi Amanda,

Honestly, on your income you probably don’t need a kick up the pants -- you’re going to be fine ...… so long as you continue earning $330,000 a year. But if the money dries up, things can go into reverse pretty quickly.

It’s a three-step trap that I’ve seen plenty of high-income earners -- doctors, lawyers, footballers -- fall into:

First, buy expensive toys (boats, cars, and cash-draining McMansions).

Second, spend like a Kardashian -- and only invest in money-losing ventures that ‘lower my tax!’.

Third, get hit with one of the big D’s: divorce, disease, disability … or a downturn where you lose your income.

It’s more common than you’d think: recent research from Digital Finance Analytics (DFA) found that 30,000 households living in wealthy suburbs like Sydney’s Vaucluse (median price $4.5 million) and Melbourne’s Brighton (median price $2.6 million) are at risk of defaulting on their debts.

Truth is, wealth isn’t what you earn, it’s what you save.You want to impress me?

Don’t humblebrag about the $31,000 you’ve peed into your Prada handbag over the past couple of months.

As financial philosopher Shania Twain says, “That don’t impress me much”.

Instead, buy a house you can afford, pay it off, then show me your plan for how you will eventually replace some of your income through passive income, i.e. your investments.

Thank-you for reading.

Scott

The revolution starts with you

The Commonwealth Bank is under fire (again).

This time it’s because CHOICE magazine called for the CBA’s Dollarmites school banking program to be banned.

(For the record, I’ve been banging on about this issue for the best part of a decade, including two years ago when I fronted a Senate Inquiry into Banking and argued that Dollarmites should be banned.)

Anyway, CHOICE said that Dollarmites is essentially a marketing scheme that pays schools kickbacks so they can weasel their way into classrooms and flog their products.

The CBA also gets to promote their own special North Korean-style financial education in the classroom, complete with corporate-collared cartoon mascots like ‘Cred’ — short for credit card — who has the tagline ‘Cred’s a cool dude’.

In response, the CBA has said they’re ‘holding a review’ into the program.

Yet, as the honourable John Howard will attest, you never hold a review unless you already know the outcome.

Mark my words, the CBA has absolutely no intention of giving up Dollarmites.

That’s because it is, quite literally, the most successful marketing campaign in Australian history: over the past 85 years, millions of Aussie kids have innocently been siphoned into the bank’s marketing funnel. Many of them got credit cards when they turned 18, and became ‘cool dudes’.

As a sign of just how strong the Dollarmites program is, today almost half the Aussie population open their first account with the CBA. Westpac, though, are trying to get the generational jump on the CBA — by focusing on the foetus, with their recently released ‘Bump Account’ (I promise you I am not making this up).

And it’s rumoured that ANZ will soon launch a ‘Sperm Account’ that targets responsible tadpoles who don’t want to be caught without ATM access during the fertility process. (Okay, so I made that one up. But don’t be surprised if, a decade from now, CHOICE is calling for the banning of the Sperm Account).

So if the CBA is never going to voluntarily get out of schools, what can we do?

If you ask me, we need a parent-led revolution.  
Starting with this question …

Tread Your Own Path!

Talking kids and money with Jenny Marchant on ABC Mornings

I was on the air last week with Jenny Marchant from ABC Mornings discussing teaching kids about money.

Have a listen below if you missed it.

It’s 2am and I Can’t Sleep

Hello Barefoot,

I am typing this at 2am -- I cannot sleep. My husband and I have a household income of $200,000 and have three small kids -- but we never see them, as we work in the city and live 60 kilometres away. The three-hour daily commute is taking its toll on us all. The house is great, and affordable, but a long way from work. Yet moving to a house big enough for all five of us that is close to the city would put us into mortgage stress. We are stuck -- what do we do?

Jenny

Hi Jenny,

Do you want the money or the box?

On one hand, a study from a university in Sweden found that relationships where one partner commutes longer than 45 minutes are 40 per cent more likely to end in divorce.

On the other, Deakin University Emeritus Professor Robert Cummins and his team have found that financial insecurity (read: mortgage stress) produces similar feelings to that of physical torture.

And you’re stuck in the middle!

Or are you? You see, it may not feel like it -- especially at 2am -- but you do have choices.

You can choose to ditch your commute and seek out jobs closer to home -- even though they’re likely to pay less. (Perhaps one of you could try this option while the other continues to commute.)

Or you can choose to spend less, and spend more time with your young kids. This is what I’d work to if I were you.

Besides, the proof is in the pudding: the Australian Wellbeing Index has repeatedly shown that people living in regional Australia (Woop Woop!) are among the happiest people in the country.

Happy travels.

Scott

Dump the Dollarmites?

Dear BFI,

My kid’s school is considering school banking, and someone suggested Dollarmites. I bit my tongue while screaming NOOOOOO inwardly. I want to attend the next meeting armed with my Barefoot ‘bible’ and strong arguments against Dollarmites, but I also need to supply an alternative. Someone else suggested school banking with Bendigo Bank, but what would you suggest? I want to educate our kids about finance, not set them up for financial ruin.

Melanie

Hi Melanie,

As Jenny from the Block would say, “You go, girl!”If I was at your P&C committee, here’s how I’d lay out the argument.

First, let’s look at this from the school’s perspective.

The CBA has said that it pays the average school $400 a year in kickbacks. That’s a great deal for the bank (after all, bank tellers get bonuses for signing up accounts). Yet it’s a crummy deal for even the most cash-strapped school.

Second, let’s look at it from a parent’s perspective, who are the ones putting the money in.

The CBA Youthsaver account pays a pretty attractive 2.29% per annum (*).

* Welcome to banking! If you fail to make at least one deposit a month, or if you make even one withdrawal, you’ll get a not-so-attractive 0.01 per cent. And if you forget about the Dollarmite account after a few years (which many of you will do), you’ll actually end up losing money when you account for inflation.

Finally, let’s look at it from a kid’s perspective.Financial education is a core life skill that every child will be tested on every day of their adult lives.

It’s far too important a subject to be left to a bank’s marketing department.In fact, financial education isn’t about opening a bank account … or even much about money. It’s about teaching values. It’s about raising resilient, hardworking, responsible and generous kids.

So, Melanie, what would I suggest?Hold off till next year.

Why?

Because I’m in the very, very early stages of writing my next book … which is all about teaching kids good old-fashioned money values and skills. And I’ll be taking it to schools -- no kickbacks, no bank accounts and no dancing mascots.

Scott

Your Book is a Joke, Barefoot

Dear Barefoot Investor,

I had three separate friends recommend that I read your book, so I gave it a try. I have to admit I was enjoying it, until I got to page 79. That’s when you started talking about credit cards, and you showed you have no idea.If you really area money guy, surely you could make credit cards work for you? If you like, I could teach you how to use the banks to get serious rewards. Maybe you could join me in first class … or maybe they don’t let people in without shoes?

Matt

Hi Matt,

Bang! You sure schooled me.

The truth is that I have my own rewards scheme going on -- but it’s got nothing to do with flights, or toasters.

Let me explain:It’s no secret that the banks have been playing hokey-pokey with the value of rewards points for years -- but right now it’s just getting ridiculous. These days, getting a reward from your credit card is almost as hard as getting a reward from your wife after seven years of marriage.

Case in point: over the past 12 months, the banks have been secretly shutting down, or radically reducing, the value of their rewards cards. According to financial comparison site, Mozo, the banks have yanked the value of their rewards points, on average, by a staggering 63% in the past year alone.  Bottom line: the value of the points, and the restrictions on redeeming them, will only continue to go one way -- down. So what’s my rewards program?

Well, it’s not having to bother playing the rewards point shuffle. It’s not having to worry about innocently missing a repayment and being slugged with back interest for the month. It’s not having to pay a hefty annual fee. But Matt, do you know what the platinum-titanium-reward-of-them-all is? I’m modelling good habits for my kids. They’ll grow up knowing Dad doesn’t do credit cards. That’s a powerful message, and for me that’s the ultimate reward.

Thank you for reading.

Scott

Talking to the Taxman

I have a rather curly question but I hope you can answer it. My husband and I are five years from retiring and, combined, we have just over $620,000 in assets, including an investment property with a mortgage. My question is, does Centrelink take the mortgage from the investment property off the total of investment assets when assessing us for the Age Pension?

Beverley

Hi Beverley,

In a word, yes. Centrelink only counts the equity in the investment property (less the debt) for the Age Pension asset test. If, however, you have both a mortgage on your home and a mortgage on your investment property, I’d encourage you to focus on paying down your home over the next five years, because its value is totally exempt from the asset test.

Scott