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Fostering financially savvy young adults

Fostering financially savvy young adults

From student debt to new technology and landing that first job, today’s young Australians are transitioning into adulthood in a world very different from the one their parents entered. While economies and societies might change, the principles of managing one’s personal finances stay the same.

Most parents try to instil good money habits in their children from an early age. Eventually they outgrow piggy banks and pocket money but the opportunities to help them navigate the world of personal finance don’t end with childhood.

Here are five lessons parents might consider passing on to their offspring as they make the transition to independent, financially savvy adults.

Lesson 1:

Becoming independent requires work

Even if you can afford to fully support your young adult children while they are still students, encouraging them to take on a part-time job can teach them valuable financial and life lessons. Not only will the income allow them to save for goals such as gap-year travels, but they will also learn how to make a job application and the soft skills required in the workplace.

If they are eligible for employer-paid superannuation, you could show them how to check their account, consolidate accounts if they have had more than one job, and discuss the magic of compound interest.

Lesson 2:

There are no free lunches

Today’s young adults have near-instant access to credit through high-tech offerings such as payday lender apps and buy now-pay later services such as Afterpay.

The self-discipline required to manage these new forms of instant credit is a big ask, especially when many of us still have problems with old-fashioned credit. A recent ASIC report found that Australians collectively had 14 million credit cards with an outstanding balance of $45 billion. Around half a million Australians were in arrears and almost a million were dealing with persistent debt.i

If you can’t convince your children to avoid the temptation posed by ‘frictionless’ credit, at least explain that easy money commonly involves high interest rates and charges. If your child is determined to take out a personal loan, help them review terms and conditions and encourage them to shop around.

Lesson 3:

Good, tolerable and bad debt

Once your child is old enough to be targeted by credit providers, it’s time to have the conversation about different types of debt. Talk them through how good debt is used to purchase appreciating assets such as real estate. Acceptable debt covers things such as taking out a car loan, so you have the means to get to work or study and don’t need to rely on parents to chauffer you around. Bad debt is using other people’s money to splurge on travel, clothes or the latest gadget.

Lesson 4:

Investing doesn’t need to be time-consuming and boring

The same technology that has made it so easy to get into debt has also made it easier to start the investing habit.

In recent years, micro-investing platforms such as Raiz and Spaceship have made it simple and attractive for techsavvy Millennials to start investing in equities. These platforms make delaying consumption near painless by, for instance, rounding up purchases to the nearest dollar then directing the ‘spare change’ into investments.

If your progeny is working and receiving super, you might also want to suggest they download their super fund’s app, so they can monitor their financial progress on the go.

Lesson 5:

Setting goals to make dreams come true

When your young adult starts working after years of student thrift, the temptation to spend is understandable. While it’s important to have fun, you can point out that setting goals and sticking to a budget in the short to medium term means they can put themselves in a position to travel the world, buy a property and maybe even retire early.

Money isn’t everything but teaching your young adults how to manage it well increases the odds that they will lead the life they dream of. Even better, you won’t need to erode your retirement savings bailing them out of financial trouble.

i https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018- releases/18-201mr-asic-s-review-of-credit-cards-reveals-more-than-onein- six-consumers-struggling-with-credit-card-debt/

Read more from our November 2018 update here:

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Owl Financial Management (OwlFM) is an Adelaide based Financial Planner that has clients all over Australia.

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We are an award winning practice that has been providing financial advice to South Australians since 1969. We really enjoy getting to know our clients and building a relationship with them that lasts over many years. We have a diverse range of clients from mum and dad to AFL players to ASX CEOs. All of which have a diverse range of financial advice needs and very different relationships to maintain. Our clients describe a 'breath of fresh air', personable, expert and people with high integrity. Clients have also mentioned that they are not treated as a number and the advice is specific to them. Working with clients for clients.

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The one most rewarding thing about being a financial planner in Adelaide is when you have been working collaboratively with a client in developing and building their goals and objectives and the come to fruition. This give both the clients and myself a real sense of achievement and to use the famous quote 'are we there yet?' and together we can say YES! There has never been a better time to look towards what you want to achieve and start a financial plan so you can get there too.

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A person's financial story is like a jigsaw puzzle... "lots of pieces needing to be put into their correct places". A financial adviser can assist a client to put the pieces in the right places by having a series of simple conversations about where a they are currently situated, where they want to be and what strategies can assist them. Every client has a different financial story and goals. Each jigsaw puzzle will always be different. A good financial adviser is experienced at putting together a wide range of jigsaw puzzles. Helping a client put their own puzzle together and seeing their satisfaction is a wonderful feeling.

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