Student Super

Hi Scott,

EmmaI am 18 years old and have just landed two casual jobs, so I need to set up a super account (after finding out that all of my past super from a part-time summer job in 2016 was reduced to $0.14 and then taken by the ATO!). I have several friends who swear by Student Super as it has zero fees for balances under $1,000. What’s your take? I would really like to have super that does not get reduced to nothing again.

Emma

Hi Emma,

Can I just say how much you rock for asking me this question at the start of your career?Seriously, if I wasn’t a daggy father who works in finance I’d do a TikTok dance for you.

Actually, maybe not. So let’s talk money:

You’re right, Student Super do have zero fees for balances under $1,000, which they should be applauded for.

But they need to make some kabana, so after your balance rises to $5,000 you’ll pay $78 plus 0.99% p.a.And that’s way too expensive, especially given you have 50 years or more (!) to compound your money.

It won’t take long to burst through the $5,000 barrier. Student Super knows this, which is why they’re trying to lure you in on the front end ... knowing they’ll make it back big time on the back end.

So, here’s what would be on my super shopping list:

Ultra-low fees … preferably under 0.5% p.a. no matter how much you have in the account.

The option to invest your money into a high-growth index fund.And no life insurance until you have dependents (cats don’t qualify).

Don’t worry about fancy apps or snazzy calculators: so long as your fund continues charging low fees, the less you hear from them, the better. Good luck!

Scott

Mailbox Bandit

Hi Scott,

A couple of years ago thieves ransacked the mailboxes in our small apartment building. We were all shaken up at the time but I forgot about it until last year when I was knocked back for a car loan. The reason? Someone had been running up buy-now-pay-later loans in my name! It took me months to clear my name — a total nightmare!

Eliza

Hi Eliza,

It was probably just kids messing about.

No, seriously.“Scammers pay kids to go and raid letterboxes” said ACCC chairwoman Delia Rickard in an interview last year.“It is remarkably common”, she declared.

(When I was a kid I delivered junk mail on my BMX for 3 cents a catalogue. I wonder how much the crims pay these days?)

I’ve long thought of my mailbox as being like my mother’s drip tray.

“What’s a drip tray?” my Millennial readers ask.

It’s a tub used to store recycled fat. Really.

Example: the oil from the Sunday lamb roast would become the fat for Tuesday night’s snags.

Sure, it was a thing when my mother was growing up, but times change, Mum! Buy some freaking oil for god sakes, and make sure it’s the activated almond oil stuff that Paleo Pete promises will cure the coronavirus.So why am I paranoid?

Because identity fraud is so prevalent: one in four Aussies have been victims of identity crime at some point in their lives, and collectively it costs us over $2 billion a year, according to the Australian Institute of Criminology.

That’s why, in addition to putting a temporary ban on our credit reports (see last week’s column), Liz and I have set up a joint email for all our bills. The only thing you should be getting in your locked postbox is birthday cards from your aunties … and junk mail delivered by a hard-working kid.

Scott

It all began with an email from a stranger

It all began with an email from a stranger:

“I was walking in a park ... and I found your wife’s credit card.”

Interesting!

However, my wife doesn’t have a credit card … 

… or does she?

“Of course I don’t!” she grumbled, and then added: “And you’re going to write about this ... aren’t you?”

“Of course I will!” I laughed.

(Nothing bad ever happens to me, it’s all just fodder for this column.)

Still, something smelled a bit off.

For one, the stranger found the credit card in the suburb my wife grew up in.

And for two, the coronavirus may have created mass unemployment but scammers have never been busier:

There’s the boost to JobSeeker, multiple coronavirus cash supplements and juicy JobKeeper payments to scam.

And the icing on the cake?

Super funds are doling out $20,000, and most people don’t even know how many super accounts they have!

Seriously, corona is like Christmas for crooks!

And it’s not just me saying it. IDCARE is a not-for-profit organisation that helps victims of identity fraud. Its founder and Managing Director, Professor David Lacey, told me that their caseload has jumped by a third since lockdown started.

Here’s why you don’t want to get scammed: Professor Lacey told me that the job of clearing your name after identity fraud takes the average person 27.5 hours of listening to ‘hold music’ at various banks.

I Never Thought It Would Happen to Me

After all, Liz and I are very security conscious:

I treat any papers with my private details on them like financial germs that could infect me.

Instead, Liz and I have a shared secure email that all our bills go to.

(And when we went full digital I scanned all the old mail I had lying around — and destroyed it. On the farm we have a 44-gallon drum as an incinerator … but if you’re in a more urban setting a $40 shredder from Officeworks is fine, though not nearly as fulfilling.)

What’s more, we’ve put ‘bans’ on our credit report.

What’s a credit report?

It contains your personal information and credit history — good, bad, and otherwise.

Banks use this as a check to determine whether they’ll lend you money.

(Your credit report is maintained by credit reporting agencies — there are three in Australia and the biggest is global conglomerate Equifax.) 

Know this: if your identity is stolen, your credit report is where it will show up first.

Also know this: if you Google “ban my Equifax credit report”, you can request to have a ban put on your credit report. And legally they also have to tell the other two credit reporting agencies to follow suit on your behalf.

That way no one can access your credit report, meaning scammers can’t run up credit in your name.

The only sticking point, if you do choose to ban your credit report, is that you have to write to Equifax (a) whenever you apply for a loan (to lift the ban, so the lender can check your history), and (b) every 12 months, since bans only last for a year.

I’ll tell you this: I’m putting the ban on mine.

Now you may be wondering what happened with that credit card the kind stranger found.

Well, she sent it to us — via our secure post office box.

After speaking to the head of fraud at the bank that issued the card, we worked out it was a case of mistaken identity.

Very lucky for us. Very unlucky for the other Liz.

Tread Your Own Path!

You Made a Mother Cry

Hi Scott,

Your Mother’s Day column brought a tear to my eye — touching stories of strong women taking control of their lives. My husband and I read your book a few years ago and it completely changed the way we manage our money. Recently the coronavirus has hit us hard, as my hours have been drastically reduced and our side business has ground to a halt, but you have us covered. Our three-year buffer in the bank means we can sit back and wait for things to improve. A deep bow of respect to you, and to your Mum!

Jen

Hi Jen,

I’m used to getting hundreds of questions, but last week’s Mother’s Day column melted my inbox — in a good way!

And you know what? I agree with you: there’s so much negativity in the media right now that it’s nice to focus on the one person in your life who’s really selfless — your mum.

After all the doom and gloom lately, it was really lovely to share some positive stories for once. Thanks for sharing yours.

You Got This!

Scott

You’re Wrong, Barefoot!

Scott,

I was not happy with your answer to Rebecca a few weeks ago. You disagreed with her husband, who told her it was “better for us to have control of our money rather than a superannuation company”. If that company was such as AMP, with poor growth, ongoing fees and other rip-offs (as exposed by the Royal Commission), then her husband’s suggestion may have been the better way to go.

Peter

Hi Peter,

That’s like saying:

“You drive a Holden Barina. It’s a terrible car. So instead, you should sell it and ride a horse.”

Who says you have to drive a Barina?

Most people have the ability to choose a good super fund with low fees.

My view is that if you don’t like your super fund you should be looking to move to a better fund rather than flogging a dead horse.

Saddle up!

Scott

How a Teenager Works 5 Hours … and Gets $1,500

Hi Scott,

I am an 18-year-old and have been laid off from my job at a swim centre because of the coronavirus. The company had applied for the JobKeeper payment, which I have tagged along on. I just found out that, even though I only worked five hours a week, I will be getting $1,500 each fortnight! How do I go from managing $150 to managing $1,500? I was thinking of keeping the $150 I normally make and saving the rest. What would you do?

Sabrina

Hi Sabrina,

Now that’s what I call Corona Cash!I have to tell you, as a taxpayer, I’m a little peeved about this.

But, as the Barefoot Investor, I’m proud of the fact you’re contacting me to do something smart with it.

Most 18-year-olds in your situation would go to Bali!

(Oh actually, you can’t do that, can you? Ha! Well, at least you can go take a trip on Bendigo’s world-famous Talking Tram, so long as you adhere to social distancing ... only four people per carriage. Rock on!)

Still, you’ve got the right idea: keep living off the income you’re used to, and use the rest to set yourself up financially.

My advice would be to stash away $2,000 in a Mojo account, for when it’s time to move out of your parents’ place.

Then, set up your buckets (including one you nickname ‘Sabrina’s House Deposit’) and start saving for your own place.

You may feel that’s a long way off, and it is.However, each time you flick open your banking app you’ll see it slowly growing.

Thanks for making my tax dollars actually do something productive!

Scott

My mother saved my life

Anna Jarvis was by all accounts a ferocious lady.

In the spring of 1908, she held a ceremony to honour her late mother ... and all mothers.

The day was deeply meaningful for her. So much so that she crusaded for a day that would pay homage to the all-too-often under-appreciated role that mothers play in our society.

In doing so, Anna Jarvis became the Mother of Mother’s Day.

Yet, just like Coca-Cola hijacked Christmas (ever wondered why Santa’s dressed in Coke’s corporate colours?), it didn’t take long for business to cash in and commercialise Mother’s Day.

Upon realising her precious day was being prostituted for profit, Jarvis simply shrugged her dainty little shoulders.

Oh NO she did not!

She lawyered the hell up and took on the suits: Jarvis believed she owned the intellectual property of Mother’s Day, and she defended her rights to the end. Newsweek reported that she once had as many as 33 simultaneous Mother’s Day lawsuits on the go.

She devoted the rest of her life — and every cent of her savings — to fighting for what she believed in.

Remember, this was back in the time before women were allowed to vote in the United States. Jarvis was just one woman taking on the might of huge conglomerates, with the sole and selfless aim of keeping her day pure.

So, on this Mother’s Day, in a hat tip to Anna Jarvis, we’re going to celebrate dedicated, courageous, ferocious mothers who never back down.

Tread Your Own Path!

P.S. And if you’ve bought your mum some chocolates, servo flowers or a Hallmark card, don’t feel too bad. While Anna Jarvis died stone cold broke in 1948, her medical bills were apparently paid for by “people in the floral and greeting card industries”. 

My Mother Saved My Life

Scott,

My first memory of receiving advice from my mother was something along the lines of “don’t feed your sister found objects from the garden”. The second piece of advice was “always, ALWAYS, no matter what, have your own bank account, and always, ALWAYS, have enough savings to move in a hurry”. I happily fed my sister gravel for a while longer, but always kept my own bank account. When I was blindsided as a new mother by domestic violence, her advice got me out safely, quickly and untraceably.

Sarah

Hey Sarah,

What a powerful story.

Your mum’s financial advice helped you and your child find safety.

And now you’re paying it forward ...

See, this column is read by millions of people. So, statistically, there are thousands of women reading these very words who are in the dangerous situation that you once found yourself in.

Now maybe they didn’t have a wise mother like yours. And maybe they don’t have access to cash to make a quick escape. Yet what they need to hear on this Mother’s Day is that a lack of cash shouldn’t stop them from escaping.

That’s because there are amazing women who help mothers and their kids find safety and financial security, and they’re available 24/7. Just call 1800RESPECT (1800 737 732).

How’s that for a Mother’s Day gift?

Lockdown Love

Hi Scott,

Let me tell you about my mother. After living through the Depression, seeing her only brother go to war (sadly, he died at Kokoda), and raising eight children on one income, my amazing 96-year-old mother is now in a nursing home in lockdown. Does she complain? Not one word. She has learnt how to use a mobile phone so she can ring us daily so “we won't worry”.

Louise 

Hey Louise,

There’s so much wisdom we can learn from your mother and her ‘silent generation’.

The Great Depression left its mark on them … it taught them that the world can be a risky place.

And, unlike us, they didn’t look to pandering politicians who promised to ‘fix things’; instead they just got on with it.

That steely self-reliance seems to have also created a strong sense of looking out for other people, as evidenced by your mum still looking out for you!

Milking It

Dear Scott,

My mother was born in 1930 on the wrong side of WWII. Her stubborn resilience and stories from her childhood shaped who I am today. She survived starvation by sneaking into abattoir yards in Hamburg and milking the cows, then bartering the milk for food! This experience translated to our family having a large garden, an orchard, chickens and a house cow. We learned how to milk, grow veggies, and make cheese, yoghurt and bread. Great life skills!

Christina

Hey Christina,

A mum’s gotta do what a mum’s gotta do, right?

And yours snuck into an abattoir and squeezed the last drop of milk out of the poor old girls. That is hard core!

Back then, growing your own food was the difference between your kids eating or not. Today it’s a wholesome hobby that brings you together as a family. Either way it creates an amazing legacy and teaches kids the value of being truly self-sufficient.

Hunger is the mother of invention!

Sound Familiar?

Hi Scott,

Mum taught us financial literacy without us knowing it. We had backyard chooks, and sold our extra eggs to the neighbours. Mum ‘allowed’ my brother, and later on me, to take over the care of (and profits from) the chooks, on the condition that we recorded all financial transactions. And if we needed more money? Well, we had to find another job, or new clients. Sound familiar?

Lorraine

Hi Lorraine,

Your mum was a smart woman.

The hardest thing about teaching money skills to kids is making it real.

Yet that’s exactly what your mum did by creating a little micro-business for you and your brother.

She made entrepreneurship simple and real … and laid a golden egg!

It doesn’t need to be any more complicated than that, which is why I’m ripping off that exact idea with my two-year-old daughter.

A Very Proud Mothers Day

Hi Scott,

Thank you for kicking my butt into gear. A couple of years ago I was a single mum, drowning in debt, with a rip-off mortgage rate. After reading your book, I sought advice from a beautiful lady called Margaret at Anglicare Financial Counselling. Then I smashed my credit cards, refinanced with another bank (who gave me $2,000 cashback, which became my Mojo) and set up my buckets. I am now sending my daughter to a private school, once an unachievable dream. When the corona crisis hit, for the first time in my life I did not have to worry. Hand on heart, I have you and Margaret to thank for that.

Danielle

Hi Danielle

I’m so proud of you.

Yet you know who else is proud of you?

Your daughter.

She’s been watching you scrimp, and struggle, and save.

You may be sending her to private school, but I’d argue that you’re already giving her a first-class education in grit.

One day she’ll fully appreciate the sacrifices you’re making, and what an amazing woman her mother really is.

Happy Mother’s Day, you got this!

---

Finally, a huge thank-you to everyone who sent in stories of their mums (and, to be fair, there were just as many dudes who wrote in). And even if your question didn’t get published, here’s one final tip that would make old Anna Jarvis smile: take the email you sent to me, and forward it on to your mum today. She’ll love it.

A Hole in My Heart

Hi Scott,

Last March I came across your book in a store in New Zealand. Since then, it has completely changed how my husband and I use our money. We have paid off $8,000 on a credit card, and this year our loan will get hammered using our ‘Fire Extinguisher’ account. But the biggest help was earlier this year. My cousin’s two-year-old daughter relapsed with leukaemia, with no more options left for treatment. My cousin and I are very close but he lives far away, in Ireland. With our Mojo, we were able to drop everything and be there for his daughter’s final weeks. I was able to support my cousin and his wife through the hardest time of their lives. With tears in my eyes and a huge a hole in my heart, I thank you for giving me that gift. 

Mandy

Hi Mandy,

That is a beautifully written, emotional response -- and it shows exactly why people should get things together. None of us know what’s going to happen next. And to be in the position where you could do what you did is one of life’s great gifts. The events that have already happened this year — fires, floods and pandemics — have taught me that right now is a really good time to have a Mojo buffer. You never know when you’ll need it.

Thank you for reading,

Scott

If We Are Heading into a Depression, Do This

Hi Scott,

I have been reading people saying that all this stimulus (especially in the US, where the Federal Reserve is printing trillions of dollars) will soon lead to massive inflation, and then recession. Even the world’s biggest hedge fund manager, Ray Dalio, says we are heading for a depression. And I have to say I agree. I am a long-time reader and have heard you say before that your advice does not change. But surely it must now, given this unprecedented moment in economic history?

Kevin

Hi Kevin,

I agree, it does look like we’re heading into a very deep recession.

Yet will that lead to a full-blown economic depression?

Honestly, I have no idea.That’s because the global economy is far too complex for black-and-white economic predictions.Personally, I cringe when I hear the word ‘depression’ bandied about.

Why?

Because it’s a very emotive, click-baity word that’s not particularly useful.

After all, if you’re a small business owner who was already struggling to stay afloat before we went into lockdown, the next few years could feel like a depression to you. On the other hand, if you’re cashed up and ready to buy, a market downturn can be a life-changing experience.

And that’s the rub: it’s your financial situation that matters most, not some arbitrary classification that an economic historian may, years from now, use to describe this economic period.

So what’s my advice?

Back yourself, son! You seem convinced that we are heading into depression, so start preparing for it immediately. Begin to aggressively pay off your debts, squirrel away a sizable savings buffer, and start looking for extra ways to earn dough.  Or, in other words, start following and applying the Barefoot Steps.

Scott

I tell you, I’ve never seen anything like it

I’ve never seen anything like it.

Last week my inbox was overflowing, and this email, which l received from reader named James, summed up the reaction to my column on 93-year old gardening guru Peter Cundall:

“Thanks for writing about Peter Cundall. I already admired him but now I hold him in awe. Amazing bloke and national treasure. Your best column ever in my humble opinion.”

As I’ve been out on the farm this week toiling away with the kids, I’ve been thinking a lot about Peter.

Partly because he’s emailed me most days with advice on our orchard. He’s convinced us to go nutty -- we’re planting a lot of chestnut trees!

Yet more so because all the things I and many people respect about him — his resilience, his stoicism, his kindness — all of which were forged in the depths of the Depression.

Okay, so maybe we don’t have it anywhere near as tough as Peter did. 

Yet we are living through a moment in history right now — and our kids are watching us.

Which means that now is a golden chance to teach your kids lessons that will last them a lifetime.

That doesn’t mean you need to scare them, or lecture them. Rather, use this uncertain time to explain to them about how risky the world can be … and the importance of working hard, the safety of saving, and the dangers of debt.

The silent generation -- people like Peter who were raised in war and depression -- came out stronger because of it.

Now, I’ll get to your questions in a moment, but first, keeping with the family theme … 

Next Sunday is Mother's Day

It creeps up on you, right?

Well, there’s one person who doesn’t forget: your mum (and possibly the wife of your children).

So whip out your phone and set a reminder to send her some flowers (see, I've got your back!).

Also, for next week’s column I’m looking for your best Barefoot mum stories.

So if you have a great story about your mum — how she’s raised you, the sacrifices she has made, how she’s been a true Barefooter (or how you’ve helped her become one) — I want to hear it.

Head over to: https://barefootinvestor.com/askbarefoot/

Everyone whose stories I publish next week will receive a signed copy of The Barefoot Investor for Families.

Tread Your Own Path!

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.