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It’s safe to say that young adults in Australia today are unlikely to have a burning interest in super and who could blame them. Travel, study, first love, first job, first home are way more pressing issues.
But if you are a parent of one of these young adults – or a grandparent, aunt or uncle – you probably wish you had paid more attention to super and long-term wealth creation earlier in life.
So how can you teach the young adults in your life about super in a way that will grab their attention? Here are six ways you can help secure their future:
1. Seize the moment
Use life events as a conversation starter. For example, if they are a student with a part-time job, or a graduate about to start their first full-time job, this is your opportunity to explain the basics of super.
Ask them this. Would you let your employer choose your next mobile phone? If not, why would you let them choose your super fund?
Fun fact to share
Take the example of someone starting work at 21 on a salary of $50,000. The Productivity Commission found they could be worse off by up to $660,000 at the end of their working life if they were in a MySuper default fund in the bottom 25% of performance compared with one in the top 25%.
If they are offered a choice, show them how to compare super funds and choose an investment option that’s appropriate for their age and risk profile.
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Once they are working and building their super, look for openings to discuss the potential impact of life events such as:
- Receiving an inheritance and saving some of it in super
- Changing jobs and the benefits of consolidating their super into one preferred fund
- Planning to live and work overseas and the impact this might have on their retirement savings
- Suffering an illness or injury that prevents them working for an extended period and the importance of having adequate insurance cover
- Having a baby and strategies to grow their super while they’re raising a family.
For super educational materials aimed at parents and students, check out Tax, Super + You on the ATO website.
2. Discuss their goals
Your kids are unlikely to take an interest in super unless they see some benefit to them. One way of doing this is to get them talking about their goals for the next few years, the next decade and beyond.
Get them to put their goals in writing and encourage them to think about how they are going to finance them. You might even gently direct them to a budgeting app you just happened to stumble across.
As part of this discussion, talk about the importance of saving and investing for big long-term goals as well as next year’s overseas trip. Because as parents know, in the blink of an eye retirement will be next on their to-do list.
It’s no accident that industry super funds built their long-running ad campaign around the Paul Kelly song: From little things big things grow. The title sums up the big idea behind super without even mentioning the C-word – compound interest.
So next time you’re sitting on the couch beside your young adult and this ad pops up on screen, grab your mobile or tablet and google MoneySmart’s compound interest calculator. Key in the amount they would save each week if they went without one coffee a day, let’s say $30 a week, and contributed that amount to super each week for 40 years at 5% compound interest. The resulting $198,603 should make an impression.
4. Explain different types of contributions
If your young adult is working and eligible for compulsory Super Guarantee (SG) payments from their employer, make sure they know their entitlements.
Good to know
The SG is currently set at 9.5% of their gross salary. The SG is not compulsory if they are under 18 and work less than 30 hours a week, or if they earn less than $450 a month from their employer.
Making additional personal super contributions is not likely to be a priority for anyone aged under 30, but it’s still worth outlining the possibilities. Salary sacrifice, personal tax-deductible contributions or non-concessional (after tax) contributions are all ways of growing their super when circumstances permit.
However, making personal contributions is an issue if your young person is self-employed or working in the gig economy where they receive no employer-paid super. Stress the importance of ‘paying yourself first’, by putting a percentage of their earnings into their choice of super fund so they don’t miss out.
5. Talk about tax
If there’s a topic even more snooze-worthy than super, it’s tax. The turning point for my son was when he received his first pay slip from his student job at the local supermarket check-out, only to discover they had taken money out for tax. So unfair!
If your young adult complains about how much tax they pay, commiserate. When you’ve got them off guard, subtly mention the tax concessions offered by super that are not available for other types of savings. Then deliver your punchline – when they retire, they can withdraw their super tax-free.
6. Encourage them to log on
Once they have joined a super fund, suggest they log on at least annually to check how their super is performing and how their fund’s performance compares with similar funds. Reassure them that their fund may have an app for that.
They should look at the impact of fees and other costs on their super balance, and whether their fund charges more than average. They should also check whether they have life insurance in their fund. If so, is the cover is appropriate to their age and personal circumstances? With insurance now opt-in for under 25s, young people in high risk jobs or with dependents should consider cover.
Get them to check that their employer has paid their entitlements in full and on time. Super must be paid at least quarterly, up to 28 days from the end of each quarter.
Teaching kids about super is a tough ask, but someone’s got to do it because they won’t learn about super at school or university. As US entrepreneur Jim Rohn says, ‘Formal education will make you a living, self-education will make you a fortune’.
So encourage the young people in your life to take an interest in their super. Share what you know or show them where to go for information. It may not make them a fortune, but the knowledge will make their later years far more comfortable and enjoyable.
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