Apple cash

There’s been a few times in my life that I’ve looked at a product and thought to myself, ‘this is the future’.

I got that feeling when Steve Jobs first pulled out the iPhone (okay, and when I first tasted Wizz Fizz).

And I got the same feeling when Apple released the latest version of its Apple Watch a few weeks ago.

In and of itself, the watch was a minor upgrade to the last Apple watch.

What got me (a father of three, almost four kids) excited was a service Apple launched called ‘Family Set Up’.

Basically, it’s an Apple Watch for your kids, that’s controlled by the parent’s iPhone, and I think it could transform the way families manage money:

Parents can instantly text their kids money via Apple Cash. 

The kids, in turn, spend that money by flashing their watch at a store. 

And when they do, their parents get a notification on their iPhone alerting them to what they just bought. 

Seriously, I could see this becoming how families could do pocket money.

There’s just a few things standing in my way:

First, the idea that I’d give any of my farm-reared kids a $400 watch is absolutely insane.

(What’s the time Mr Wolf? *Shrugs shoulders* WHERE’S YOUR BLOODY WATCH?!). 

Second, Family Set up is only available in America … for now.

Futuristic, huh?

Well, Apple may be vying for your wrist, but Billionaire Jeff Bezos is groping lower.

Yes, right now you can walk into one of Amazon’s Seattle convenience stores and pay for your stuff simply by scanning the palm of your hand as you walk out. 

It’s called the ‘Amazon One device’, and it uses biometrics (the lines, and veins in your hand)  to create a ‘unique palm signature’ that’s matched to a card that Amazon has on file. You’re done and dusted in 300 milliseconds. 

High five!

(At this point you’ve got to feel for those geeks who jumped the gun and had microchips injected into their bodies).

Amazon said it chose to use palm-scanning because people ‘consider it more private’ than say eye-scanning or facial recognition. Still, I’ve got sweaty palms about giving up my privacy.

My view?

You don’t need to be a palm reader to know that COVID has sped up the inevitable death of old-school, analogue cash and coins. Yet in the future, we’re all going to have to balance our privacy against our payments.

Tread Your Own Path!

A Mother with a Message

Hi Scott,

A year ago I was a fit and healthy 42-year-old single mum with two boys aged 10 and seven. Your book has helped me get on top of my finances, and every year I re-read it (well, listen to it on my commute). When I read it in October 2019, I realised my death and TPD  insurance wasn’t anywhere near the 10 times annual salary you recommend, so I bumped it right up. 

And I am so glad I did. Last December I was diagnosed with a rare terminal cancer, and my insurer has now paid out nearly $1 million. I have been able to pay for specialist treatment not covered by Medicare, see off the mortgage, and set up a trust to support my boys when I am not here. So much of how well I am doing is because I have the financial freedom to just live. Everyone should have this freedom. So thank you, Scott, for the work you do — you are saving lives.

Emma 

Hi Emma,

Just wow.

The greatest respect I can give you is to put this in front of my community of Barefooters.

If you’re a parent, you need to follow Emma’s lead and act on this.

The ‘10 times your salary’ figure is a very rough guide of course — you should speak to your super fund’s financial advisor (in the first instance) about what’s right for their family.

Do it for Emma. Do it for your kids. Do it TODAY.

Barefoot Sales Spiel

Scott,

I live in the Northern Beaches area of Sydney. The other day, a real estate agent came to my door quoting you saying that house prices are sure to drop in the coming months and now is the time to sell. I instinctively don’t trust salespeople, but is there any truth that you suggested this?

Sam

G’day Sam,

It’s a little twisted sister for my liking.

A few weeks back I wrote about the NAB CEO’s suggestion that people who found themselves in financial difficulty should sell, yet that was him saying it, not me!

In fact, I specifically said “Please don’t misquote me: I am not saying you should sell your home”.

It sounds like the agent is using my name to make a sale (depressingly, that happens quite a bit to me these days).

My advice?

Shut the door in his face.

The Fortunate Son

Hi Scott,

I like reading your column, but last week’s hit me so very hard. I am currently having the exact experience with my 18-year-old son, who has lost some money through trading. He does not want any advice from his parents, yet still hopes to be a ‘trader’. We read your book as a family and did the three buckets with our kids for some time, but he now wants to manage all his own money (which I understand, as he is 18). But gee it’s hard to sit by and watch him make some not-so-good choices (and hopefully learn from them). Any suggestions?

Linda

Hi Linda,

The fastest growing segment of the gambling industry is young men. That explains those ads on the telly that show young lads gambling and having a roguish, laddy good time on the punt.

What I’d explain to your son is that if he gambles on sports or stocks he’ll end up a loser.

And the reason he’ll lose his money is quite simple: he can’t control the outcome. He has no edge.

He’s a patsy for the big professional investors, who will chew him up and spit him out, just as surely as the gaming industry is sucking dry the accounts of impressionable young gambling-addicts-in-training.

If he really wants to be a big man and chart his own course in life, he should gamble on himself.

Get a job, learn everything he can to start a business of his own, and then double down on starting his empire.

Take on the world and win! 

But do it in a game where he can tilt the odds in his favour.

What’s the deal with zero interest credit cards?

When you’re doing my job, you just never know who’s going to walk through the door.

One day a woman in her sixties sat down in front of me ... and totally blew me away.

“Let’s start with your debts”, I said, pulling out a piece of paper.

“Well, I have a credit card”, she said.

“And how long have you had it?” I asked, biro in one hand, fingers poised on my calculator.

“Forty-four years”, she replied.

“You mean four years”, I said, correcting her.

“No, I mean forty-four years. My mum gave it to me when I turned eighteen ... and I’ve had it ever since.”

Pluck-a-duck!

She’d been paying interest on the balance longer than I’d been alive.

This woman was from another era … the Bankcard era.

In 1974, banks kicked off Australia’s first credit card, Bankcard, with greedy gusto, mass-mailing cards to customers without them even asking for it. For the poor, it was a revelation. Free money from the bank!

Times change.

Today, credit cards are viewed like cigarettes: expensive, unnecessary, and lethal if you get hooked.

Sure, there are still some poor bastards who can’t quit and continue smoking (and paying credit card debt), but the majority of people avoid them, especially young people.

Why?

Two reasons:

First, like smoking, we now know the truth. Credit cards are a rort; the majority of cards haven’t budged from charging nosebleed 20% rates despite interest rates being basically zero.

Second, as a consequence of this, young people have moved on to alternatives like Afterpay, which to me are the equivalent of vaping. 

(And, like vaping, Afterpay claims it’s (financially) much healthier for you — which explains how they’ve managed to slip through the responsible lending provisions — yet where there’s smoke, there’s financial fire.)

And that brings us to today, with two old bankers, NAB and Commbank, recently launching ‘zero-interest’ products in a last-ditch effort to make credit cards cool again.

CommBank called theirs the ‘Neo MasterCard’ (hey, the kids like that Matrix film, right?).

NAB called theirs ‘StraightUp Card’. 

Really? 

This from a company that admitted to the Royal Commission that its customers’ money all too often accidently fell into NAB’s pockets.  

Straight up.

Both cards promise “no interest payments, no late payments, no foreign currency fees, ever”.

So what’s the catch?

Well, these cards only offer small amounts of credit, up to $3,000.

And they charge a monthly fee, from $10 for a $1,000 limit up to $22 for a $3,000 limit.

The rub is that the banks charge the monthly fee regardless of how much you spend (unless you don’t use your card at all — in which case you don’t pay the fee that month).

Yet in some cases the monthly fees can often work out to be … almost as much as a regular credit card.

So what do I think?

I think we should view all of these products as coming from cigarette salesmen.

Here’s the rub: all of these products train young people to spend money they don’t have.

And that is a terrible way to live your life long term, and often leads to disastrous consequences.

Case in point: my sixty-something client.

She’d spent the last four decades working two jobs … just to pay some banker’s bonus. (Bonuses.)

I looked at the budget we’d just written out, which showed about half her pay was going in interest.

“I just don’t see how this works”, I said bluntly, leaning back in my chair.

She pursed her lips, looked down at the floor, and said nothing for a long while.

And then, in almost a whisper, she said: “Well … sometimes I don’t eat … eating is expensive.”

Tread Your Own Path!

My ‘Fake Rich’ Life

Hi Scott,

I started reading your book when I was lying by a five-star pool in Dubai, which I had booked on my credit card. I was living a ‘fake rich’ life, holding down a high-paid job but living week to week. I had $23,500 in credit card debt, a loan for my Lexus, and no savings. You opened my eyes and forced me to stop kidding myself. I set up my buckets and started paying off the debts one by one. I sold my car and started cycling everywhere. A house is in touching distance and I cannot wait for everything else to come, because I am now READY!

Nate

Hey Nate,

Well done.

The hard thing about money is that it works the opposite of fitness:

If you’re unhealthy, your muffin-top is on show for everyone to see: there’s no hiding it.

Yet with money it’s often the financially fattest people who look the fittest!

And that explains why I don’t watch reality TV … though my wife loves trashy shows like The Bachelor.

The other night I was walking past her and I casually mentioned, “Hey, did you know one of those reality stars wrote to me asking for advice?”

It was the only time that evening she took her eyes off the TV.

“OH MY GOD, WHO WAS IT?!” she yelled.

“Huh? I don’t remember. As soon as they wrote that they were an Instagram influencer, I deleted it and moved on.”

She just stared at me for a second, then went back to watching her show.

(No rose for me.)

I’ve always said that the hard life is living week to week, desperately trying to keep up appearances.

Being broke drains you of your energy and self-confidence, and clouds your opportunities.

Gaining control of your money gives it back, and then some.

You Got This!

They’re Coming Out of the Woodwork

Hi Scott,

I’ve just read your article entitled “The Horses”. My wife was tricked into buying an almost identical funeral insurance policy from Insuranceline. We estimate we have paid $35,000 in premiums since 2007, with a payout cover of just $6,000 each. My wife and I are now in our seventies, with the age pension as our only income. And, as you know, they keep increasing premiums as we get older. I’m stressed. What can we do?

Ted and Eileen

Hello Ted and Eileen,

I’m used to getting a lot of emails.

Yet I’ve been blown away by the number of people who’ve written to me in a similar situation to you.

Your wife entered into this financial transaction not out of greed but out of kindness and selflessness:

She didn’t want to be a financial burden on her family.

Sadly, too many insurance companies manipulate this emotion for their own gain.

The problem is that, in some cases, if you stop paying the rising premiums you can lose your cover (though you should definitely check the wording in your policy, or call a financial counsellor on 1800 007 007 to help you with it).

Yet if you keep paying you may not be able to afford to travel and see your grandkids. Or do Christmas presents.

The irony is that if you were to speak to your family, you’d find they’d rather you spend the money enjoying yourself than living your final years being stressed out about money.

Besides, a private funeral typically costs around $4,000 for a basic cremation, or up to $15,000 for a more elaborate burial, according to ASIC’s MoneySmart.

I’d encourage you to make a formal complaint to the insurer in writing, and if you don’t get an appropriate outcome take it up with the Australian Financial Complaints Authority (ACFA) on 1800 931 678.

Superhero

A father was walking past his 20-year-old son’s empty room when something caught his eye.

A Post-It note was taped to the middle of his son’s computer screen.

“Turn on the computer”, it read.

It took 30 seconds to boot up his son’s computer ... and 10 seconds to turn his life upside-down.

“If you are reading this, then I am dead”, the letter began.

What follows is the true — and tragic — story of a young American university student named Alexander Kearns.

Like many guys his age, Alexander began share trading during the pandemic.

Also like many guys his age, he kicked things off by downloading the Millennial-friendly trading app Robinhood.

Robinhood is the hottest finance app in the world, with 13 million accounts. It not only offers free trades, you can open an account with just a few bucks, which is a big reason Millennials love it. Yet the real reason it’s so popular is that the app has gamified the trading process:

Digital confetti falls onto the screen after you make your first trade.

And the app sends push notifications to your phone to encourage you to keep trading.

For his part, Alexander began trading highly risky options contracts on Robinhood.

The night before he took his life, Alex logged into his account and got the shock of his life: 

A trade gone wrong. Very wrong. $730,165 wrong!

For a university kid living at home with his parents, it was a mind-boggling amount of money to come up with.

Money he didn’t have.

In a blind panic, he wrote his letter, attached the Post-It note to his screen, and jumped on his bicycle ... never to be seen again. Of course, suicide is rarely caused by just one event, yet stressful experiences can be a trigger.               

Robinhood’s mission is to “democratize finance for all … making investing friendly, approachable, and understandable for newcomers and experts alike”.

Well, this week Australia got its own Millennial-focused trading app, called Superhero.

Like Robinhood, Superhero’s goal is to “make investing accessible and understandable for everyone — no matter if you’re a seasoned trader or buying your first stock”.

Like Robinhood, it offers cheap trading, charging a flat fee of $5 per ASX trade, with minimum investments of $100.

Unlike Robinhood, Superhero doesn’t offer risky options trading.

I spoke to their CEO this week, and he seems like a decent bloke who is aiming to simultaneously attract new and younger investors into the market and bring down the costs of trading.

Still, I am not a fan of apps like these.

Yes they’re cheap, yet they encourage often young and inexperienced users to trade, and that is toxic to their wealth. 

Contrast this approach to Vanguard, the largest fund manager in the world, which is owned by its members.

When they unveiled their ‘personal investor’ offering earlier in the year, they gave me a demo.

They had intentionally added in ‘friction points’ in the buying and selling process to dissuade people from actively trading.

And I absolutely LOVED it.

“Make it more boring!” I cheered.

In fact, I suggested that they didn’t need to build an accompanying app: “Just keep it on the daggy desktop. There’s no need to trade shares when you’re on the toilet.”

(They’re in the process of creating an app.)

Still, my idea of a great investment app is something you set up once: a regular investment into various low-cost index funds. In other words, set-and-forget. And that is a plan that would have worked out well for Alexander, a young man with the world at his feet.

Instead, his father sat at his son’s computer reading his suicide note.

His son was distraught at losing so much money, and admitted in his letter that he had “no clue” about trading.

Tragically, he was right.

Even more tragically, Alexander had actually misread his Robinhood account balance: he hadn’t lost the money at all.

Tread Your Own Path!

Rest In Peace, Alexander Kearns

If you or someone you know needs help, contact Lifeline on 13 11 14 or visit lifeline.org.au.

An Unusual Request

Hi Scott,

I have an unusual request. 
 
Before reading your book, my husband Derek’s after-work hours were taken up largely by games on his phone and Netflix. Now he reads investing books every evening. It has been amazing to see him transform! We have paid off our house and are investing our savings, with our portfolio growing rapidly. We have a one-year-old son who is the luckiest boy in the world to have my husband as his father. So to my request: please tell my husband “well done!”
 
Sally

Hi Sally,
 
It’s got nothing to do with me, and everything to do with becoming a father and realising what’s truly important.
 
Your hard work and dedication have given you the ultimate form of wealth: time to spend with your kids. 
 
The only test you have is the urge to upsize your home. Remember, though, that kids don’t care about the suburb you live in, the car you drive, or your title at the office — all they really care about is spending time with you.
 
Your husband has worked it out.
 
Happy Father’s Day, and good onya Derek!

Scott

Dad Ditches Wife for Kids?

Hi Scott,
 
My lovely husband and I (both in our forties) are doing our wills. Unfortunately, this is a pressing matter as he has terminal cancer. When it comes to dealing with his illness he is a legend, but with finances he is a freaking nightmare. Luckily, his life insurance will pay out $2 million. But this is where the problem lies — he wants to divide it equally between me and our three teenage kids, which they’ll each get when they’re 25. This leaves me with just $500,000 to support myself and the kids until then. My husband is the main breadwinner and my income does not even cover our rent. What should I do?

Belinda

Hi Belinda,
 
I’m so sorry for your situation; my heart goes out to your family. 
 
The simplest option — and the way I have my own will set up with my wife — is to have everything go to the surviving spouse. That allows them to make the decisions for the children going forward.
 
Yet it may not be the best option.
 
That would be the both of you sitting down and planning it out together, ahead of time.  
 
And that’s exactly what you can do. You may not know this, but a terminal diagnosis should mean that your husband will have access to his payout 12 months before his death (or 24 months — check your insurance policy). That should be enough time for you to work things out together.
 
Now this is his legacy that he’s writing, and it’s understandable he wants to ensure that no-one misses out. 
 
So here’s how I’d frame the discussion with him:
 
If he wasn’t sick, and you won $2 million in the lotto tomorrow, what would you do with the money as a family?
 
Here are some ideas that spring to my mind: 
 
First, you’d likely buy a nice, secure home for the family to live in. No more renting, and no mortgage either.
 
Second, you’d make sure the entire family had reliable, safe cars (when the kids get their licences).
 
Third, with no mortgage, you’d probably reprioritise your work and spend more time with the kids. 
 
Finally, you’d put some money aside for your kids’ education or to help them with a home deposit, or both.
 
Yet leaving kids with a large inheritance may not be the best way to achieve these things. It might be a better idea to match them dollar for dollar as they save for their first home. That way you’re helping them but also encouraging them to work hard and save — qualities that will serve them well, long after you’re both gone.
 
Ultimately, my hope is that your husband finds some comfort watching his legacy take shape.
 
My thoughts are with your family.

Scott

My Doom and Gloom Dad

Hi Scott,
 
My dad and I are classic doomers. Dad would often speak around the dining table about the looming subprime mortgage crisis — among other things, like public debt, and the devil in credit cards — when I was a teen. Now I am a Millennial who turned 30 this year.  
 
I have a modest but secure(ish) job in the Queensland Public Service, and was rattled to see my superannuation wiped by the corona-crash. Naturally, I went to my father for advice. He told me a huge crash is coming and to put my super into cash. However, I have seen it recover very quickly. So is my dad an economic genius or is this all pure coincidence? 

Jim

Hey Jim,
 
How lucky are you to have had serious, meaty discussions over the family dinner table growing up!
 
Now, no one can predict the future, yet you should internalise the real message your old man is giving you: 
 
“Life is risky, so be sensible with your money.”
 
But what about his suggestion to move to cash?
 
Well, I wouldn’t do it.
 
That’s because I worry that all this money-printing will at some stage lead to inflation: if inflation averages just 2.5% per year, then after 15 years a third of your purchasing power is gone. After 30 years, more than half the real value is gone. 
 
You need to outrun inflation, and historically the best way to do that is by investing in the share market.
 
Know this: investing, like parenting, is the ultimate act of faith. 
 
Things are never clear. There are no guarantees. You just put your best foot forward. 
 
It sounds like you have an awesome dad. So learn from his wisdom, plan for the worst, and hope for the best.

Scott

The multi millionaire and the $20 book

I’ve got a friend who is super successful, and very, very rich.

He sold his business for $300 million, owns a resort, and hangs out with dignitaries.

I was talking to him one day and he told me something that shocked me:

“Looking back on it all, my most cherished memory has been reading Harry Potter to my kids each night.”

Not the mega deals. Not the mega mansions. Not the pointy end of the plane. Reading a $20 book to his kids.

And you know what I thought?

I wondered if he’d ever told his kids that.

See, dads don’t always open up. We’re all too often busy being the breadwinners, the hunters, the gatherers, the planners, the fixers. Yet what we really want is to spend time with our kids, and let them know we care about them.

That’s all that really matters in the end.

So this Father’s Day I want you to give your dad the ultimate Father’s Day present: a chance to open up to you.

If you’re lucky enough to have your father still with you, whip out your phone, hit ‘record’, and ask your dad the following questions:

• How did you meet Mum?

• What advice can you share with me about money, life and happiness?

• What does being a dad mean to you?

• What are you most proud of?

• How would you like to be remembered?

Each year people write to me telling me (often in tears) how it really was the ultimate Father’s Day present.

And then, throughout the year, people who have lost their father tell me they cherish the video they made.

So, as you thumb through Instagram or Twitter for the millionth time today, stop and do this.

One day, it’s all you’ll have left of him. And you’ll treasure it.

Happy Father’s Day!

cough, cough, cough

“Cough, cough, cough.”

My wife rolled over in bed and shot me a dagger: “What was THAT?”

For the next few minutes I successfully stopped myself from coughing, but it felt like my head was going to explode.

Then it burst out again: “Cough, cough, cough.”

“First thing tomorrow, you’re getting TESTED”, huffed my six-month-pregnant wife.

And the next morning I dutifully did.

The lady came out to my car sporting full HAZMAT get-up, two oversized earbuds, and a rough curbside manner:

“This is probably going to hurt”, she said from beneath her facemask and protective visor.“You really shouldn’t say that, because …”At that point she stuck the swab deep into the back of my throat. Then, as I was dry-retching, she poked the other stick so far up my nostril it felt like it hit my eyeball. Then the other. And a few seconds later it was all over.  “It hurt, right?” she said.When I arrived home I was a little shaken up, so I stretched out my arms for a reassuring cuddle from my three-year-old daughter. She took a step back, folded her arms, scrunched up her little face, and grumbled: “Daddy is sick.”I was officially the leper of the family.  As my cough intensified, it slowly dawned on me that, despite doing all the right things (self-isolating on the farm, wearing a facemask in public), I had contracted the ‘Rona’.

My next 36 hours were full of anxiety. I sat up in bed ‘doom scrolling’ — reading  depressing reports about the virus. Soon I’d have the shame of adding to the Premier’s daily ‘COVID count’ (AKA ‘Dan’s Daily Disease ’n’ Death Diatribe’). I felt totally out of control. 

And that’s when it hit me: people stay up at night with the same worries about their debts. In fact, Beyond Blue came out with research this week finding that financial stress and mental health are intimately linked.  It’s well known that when you’re struggling mentally the first step is to call Lifeline on 13 11 14. It’s less well known that when you’re struggling financially the first step is to call the National Debt Helpline on 1800 007 007. (My hope is that one of the things that comes out of this pandemic is that the National Debt Helpline will be just as well known as Lifeline or Beyond Blue.)

Yet just as I started to peak out, my phone buzzed.

It was a text message: “COVID-19 virus was NOT DETECTED.”Phew!I threw down my phone and fell into a deep sleep. Well, until I was woken by my wife in the middle of the night:“Cough, cough, cough.”Tread Your Own Path!

Beyond Blue and Financial Counselling Australia have launched a public awareness campaign to encourage people in financial stress to seek support. Learn more at www.beyondblue.org.au/financialwellbeing

My Wife is too Spiritual to Work

Hi Scott,

My wife and I have been married almost 16 years and we have school-aged kids. I have always encouraged her to contribute to the family budget. And she has, but earns just a few hundred dollars a month with her holistic medicine business. She is a very spiritual person and does not believe in hard work. Our Date Nights get stuck — we just cannot buy a house and develop financial independence. Should I persevere, or respect her right to work as little as she wants?

Barry

Hi Barry,

If I were in your shoes … actually I wouldn’t be in your shoes, because before we got hitched my wife and I signed up for marriage counselling. The pastor asked a lot of very direct questions, like: “How much do you want to earn?” and “What role do finances play in your life?”

Bad luck, Baz! That ship sailed 16 years ago, and now you’re up a creek without a paddle.

Now I don’t have a tarot card, but I’d suggest there’s something deeper going on with her. The “I can’t work because I’m a spiritual person” is an excuse. After all, Jesus was a chippie who got on the tools (though he didn’t work on the Sabbath). Something’s going on. Yet arguing with her is unlikely to work.

So what can you do?

Well, don’t make it about her. Instead, focus on your kids.Kids model their parents, and she’s teaching them to avoid work and shirk financial responsibility.

How will that shape their lives?

What consequences will that have for them?

Here’s the deal: hard work has its own reward. You could even say the feeling of doing a great job … is spiritual.

Scott

Indigenous Woman, Hear Me Roar!

Hi Scott,

I am a young professional Aboriginal woman from Cape York. In the past I made some foolish investments, but a few years ago I picked up your book. I loved it, though I struggled to get my hubby to read it. So I played him your audio-book in the car. He was so excited, given how easy it is to follow. 

Long story short — we are now on our way to financial freedom! We no longer have credit cards or a car loan, we have refinanced our mortgage, and our renters are paying our mortgage off for us. We also have a joint account and have started our little guy on the jam jars. I would love you to do a ‘Barefoot Walkabout Tour’ once COVID is out of the way. 

Tania

Hi Tania,

This makes me so happy. Well done!

We have a shameful history of finance companies ripping off Indigenous communities (especially when it comes to funeral insurance). One not-for-profit group that is making a huge difference in this area is MoneyMob Talkabout, who employ Aboriginal elders to teach financial education in remote communities. Check them out at moneymob.org.au.

The Horses

Dear Scott,

My mother-in-law took out funeral insurance way back in 2004. Since then she has paid approximately $29,000 ($72 per fortnight), but if she were to die the payout would be $17,700. I cannot find a legal way to get them to stop taking more of her money. They will stop when she is 90, but sadly she is 70 and has Parkinson’s. Any ideas?

Sarah

Hi Sarah,

You know what I dislike more than those mindless morning television shows?

The ads that pay for them.

A big infomercial flogger is funeral insurance, and they really press on your emotions to ‘not be a burden to your family’. The Royal Commission showed that the companies that sell this type of insurance are the WORST.

Let me count the ways:

First, you often end up paying more in premiums than the value of the cover.

Second, the premiums often rise as you get older, when you can least afford them.

Third, if you stop paying, in most cases, you won’t get your money back.

Fourth, if your mother-in-law had invested $72 a fortnight into a low-cost index fund for the last 16 years, she’d have $63,000 by now. That could afford a helluva funeral (she could even have Daryl Braithwaite tow her coffin out on a horse while singing The Horses).

So what can she do?

Well, these products are often sold by slick salespeople with predatory practices. If that happened to her, she may be entitled to a resolution.

You’re thinking “but my mother-in-law is a pensioner with Parkinson’s, she won’t stand a chance”. And that’s why I want you to put me in contact with her this week, and I’ll take this on personally.

It’s time to whip these nags!

Message in a Bottle

Dear Mr Pape,

I have $10,000 in a bottle buried for my only granddaughter, who is two. I want to buy her a car when she turns 18, but I may not be here by then as I am nearly 68, and I also realise it will not be worth much by then. I would like to know how I could grow it better. 

Loving granny, Mary

Hi Granny,

Money in a bottle?

That reminds me of a guy I know who does a lot of cash jobs. Over the years, he has buried some of this cash in his large yard. Yet one day he went to dig it up and, lo and behold, he’d forgotten where he’d buried it.

So he got what he uncharitably called a ‘yokel’ (local) to find it for him, being careful to describe it as “just an old box of papers”.

“I’ll pay you ten bucks an hour … but no bloody lunch breaks!” he snarled, as he left in the morning in his Merc.

That evening when he returned home, he couldn’t believe his eyes: the yokel had dug up every inch of his expensively landscaped yard. Seriously, there were more craters in it than the moon. And yet, despite his hard work, the poor yokel never did find the box. (Or so he said.) True story!

And the moral of the story is that keeping your money in a bottle is not a good idea. You have 16 years to grow it: I’d suggest thinking about investing it in the share market via a low-cost fund. You may also want to investigate a share investment bond, which allows you to nominate what age your granddaughter can receive the money, and for what purpose. Do that and the only bottle you’ll have to focus on is champagne at your granddaughter’s 18th.

Scott

Dodgy Banks, Dodgy Accounting

Hi Scott (you dirty misandrist haha!),

I am hoping to get your thoughts and advice on these dodgy banks. Years ago, I bought a home for $535,000, with a 5% deposit, initially paying ‘interest only’ on my home loan. (So a ‘loan to value ratio’, or LVR, of 95%.) Cut to today and I have brought the loan amount down to $460,000. So I thought I’d do the Barefoot thing and ask my bank for a better rate than the 3.97% I am currently being slugged with. Yet when I called them to review my loan, they said that because my house price has fallen (I live in Perth) they now consider my LVR to be 120%! I expected them to reduce my rate once my LVR was sub-80% of the original loan and house valuation. My question is: can they move the goalposts like this? It is absolutely shattering!

Steve

Hi Steve,

Better grab two Panadol and a Berocca, Steve. This one’s going to be rough.

Here’s the deal: you bought your joint when the property party was in full swing.

Your bank was feeling liquid and loose! How else can you explain that they let you buy into a new suburb with just a 5% deposit and an interest-only loan? Now it’s the morning after, and the hangover has set in.

In your case the bank has revalued your property down from your original purchase price, $535,000, to around $380,000. And that’s how you get the 120% loan to value ratio — you’re only looking at the ‘loan’ part of the ratio while the bank is looking at the ‘value’ part.

Bottom line?

You’re upside down. 

If you had to sell in a pinch, you’d be out of pocket. As would the bank (and banks hate losing money).

The situation you find yourself in is why I steadfastly recommend people save up a 20% deposit.

You’re in no position to negotiate a better rate, so there’s no hair of the dog for you, my friend.

It’s tough, but you need to ride the porcelain bus, then get cracking on paying down that loan.

Scott

Jimmy the Gold-Digger Responds

Hi Scott,

Having my gold question answered by you just knocked me off my old sneakers, and I was not offended whatsoever! On the contrary, I was overjoyed and showed your reply to my wife. She was overjoyed that you agreed with her about owning shares instead of gold. As a reward for my honesty, she wants to buy me a bar of gold bullion. I will be stroking gold soon and might even take it to bed. Maybe it will help me sleep better than a weighted blanket. Now all are happy, maybe even Karen who criticised you so intensely. Thanks a lot, mate.

Jimmy

Hey Jimmy,

I’m glad to be of service.

And given that I’ve been labelled a misandrist (‘man hater’), and been threatened with the Racial Discrimination Act, I will certainly not even comment about how happy I am that a 71-year-old bloke can go to bed ‘stroking’ a gold bar.

You got this!

Scott

NAB CEO says ‘get out now’

“Get out now.”

That’s the advice the CEO of NAB has given to homeowners who are struggling to make their repayments.

Yes, in his quarterly trading update last week, NAB’s new-ish chief, Ross McEwan, warned:

“There will be some circumstances where people are better off selling out early and taking some equity out of their homes, or keeping some equity, before it disappears.”

While most of the media didn’t give his words much attention, there are two good reasons that you and I should:

First, because in all the years I’ve been doing this column I’ve never heard a bank boss speak so candidly. 

Bank bosses are basically politicians: they get parachuted into the top job, stay there for five years, and rocket out with $40 million. Their main job is to stick to the script: “keep lending”. (And we’ve all witnessed how bad things go when bank bosses go off script, like getting into wealth management.)

So why is NAB’s CEO sticking his neck out?

Well, that brings me to my second point: he obviously doesn’t like what he sees on the horizon.

And know this: McEwan isn’t peering into a cloudy crystal ball. Over the years NAB has invested billions into tracking its customers’ every financial move. In fact, all the banks have incredibly detailed customer analytics that tell them what people are doing — or not doing — with their money, in real time.

Now, according to the banking regulator, APRA, roughly 1 in 10 mortgages in Australia are paused.

Which gets me thinking ...On one side, how long can the banks cop 10% of their customers not paying?

On the other, when will customers who are really struggling finally bite the bullet?

It’s a grim situation.

My hunch is that the banks are betting that the overwhelming majority of their customers will get through this. Yet they also know a small number of their customers won’t, and so they (well at least Ross McEwan) are turning up the heat on them.

My advice?

Please don’t misquote me: I am not saying you should sell your home.

What I am saying is don’t be a frog … if you were in hot water before COVID hit, don’t just sit there bubbling away.

We’re still early on in this crisis, and you have more options than you think. And if you want someone independent (and free!) to walk beside you and carefully lay out your options, call the National Debt Helpline on 1800 007 007 and speak to a financial counsellor (like me) immediately.

The last word goes to McEwan:

“We’ve seen in other crises around the world, when people try to hold on they end up walking away with nothing.”

Don’t say you haven’t been warned.

Tread Your Own Path!