Category Archives: Pay It forward

How do I Prepare my Children For Financial Success?

*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.  

Parents may be wondering how to teach their children what they need to know about money. On one hand, we don’t want kids to be completely naive, fall for scams and credit card company (or buy now, pay later) antics. On the other hand, no one wants to burden children with adult problems or become money-obsessed.

And we certainly don’t need to grow spoiled, entitled children that think money “Grows on trees”

It’s important as parents to teach kids to earn, spend and save money. Children have learned most of their financial habits by the age of 7. This is not a discussion you should put off until they are “old enough”, but like learning to cook or clean the house, something they should gradually learn in age-appropriate ways as they grow.

How do I Prepare My Children for Financial Success? Age Under 4

At this young age, kids are in danger of swallowing coins (which can get stuck) so playing with money is probably not a good idea.

These young children can, however, learn a lot through observation. It’s how they are learning everything else at this stage, and you will find them mimicking your behaviours in their play. It’s a cute (admittedly exhausting) stage.

-Shopping

Even at this early age, they are observing you grocery shopping and will enjoy swiping your card at the checkout. Using tap and go and ATMs are great opportunities to explain what is going on. If you look at the situation through the eyes of a toddler, it would appear as if the groceries are free, and the ATM is a magic machine that spits out endless money.

It is important to fill the gaps! That when you use these machines, the money you have earned for work is depleted.

Kids at this early age are cute and demanding. They are very easy to spoil. Remember that you are forming their expectations for the rest of childhood. Do not give into toddler tantrums and buy toys and sweets impulsively.

I always think this quote sums up parenting, although it wasn’t written about kids! It’s so applicable to many areas of life. Doing the hard thing initially often makes your life easier in the long run.

“Hard choices, Easy life.

Easy Choices, Hard life”

Jerzy Gregorek

I remember carrying my toddler, screaming Kmart down over a $3 ball! It was incredibly embarrassing, but I don’t regret it.

The same toddler once pointed, asking for sweets hung just at his height at the check-out. The shop assistant laughed at my response of incredulity,

“Don’t be ridiculous. We don’t just buy sweets from the shop”

My young children soon understood that the toys at the shop were for birthday presents and sweets were special treats that mum and dad appeared with occasionally.

You may think I am a bit harsh. I’ve seen the way spoiled doctors kids turn out!

Kids this age are obviously impulsive. They see something, they want it. If you teach them to give in to these impulses and purchase nonsense to keep them happy/quiet it may become an expectation, then a habit.

If there is some toy they are really and persistently interested in, now you have the perfect opportunity to teach them about delayed gratification by saving up.

How do I Prepare My Children for Financial Success?Ages 4-6

-Pocket Money

This may be around the age you want to start giving pocket money or chores.

There are two ways to approach this. Some feel kids should receive pocket money regardless of chores so that they can learn to spend and save regularly.

Others feel this may lead to entitlement (being given money for nothing). They believe money should only be paid for chores.

Go with whichever feels right for you. Kids this age don’t need a lot of money. You don’t want to give them so much money they feel it’s never-ending. You want to give them just enough to buy little treats on occasion, but need to extra or save up for a special toy.

With our two boys, we are doing a little of each. They receive a cheapskate “allowance” each month into their savings account. Their account is actually an excel document on my laptop. The Bank of Mum & Dad pays an impressive 12% PA interest (paid monthly) to encourage saving and teach the concept of compound interest.

-Shopping

When shopping, kids can understand a little more. Vocalise what you are doing, such as choosing a packet of rice. How do you choose which one? Introduce the concept of value for money and budgeting.

Teaching money management skills is how to set up your kids for financial success as adults.

-Teach Kids to Pay for Financial Obligations First

Kids can understand the concept of “Needs and Wants”. There is are free financial literacy education resources available at Choose FI. My boys really enjoyed the needs vs wants game during the lockdown.

At this stage, you can reassure them that all their “needs” will be covered by their parents. But their wants are for them to save and prioritize. And of course, they can always ask for that special something for their birthday or Christmas.

-Open a Bank Account

You can choose to open a real account, or as we have, make a Bank of Mum and Dad account with an excel document. This important step can help kids form good money habits from an early age.

The boys can withdraw money from their “accounts” when they like (but obviously forfeit interest). This is also a lot easier than being organised enough to have pocket money cash available each week.

My 8 year old totally gets it. He is excited to see his savings grow, and I may live to regret the generous interest rate in 10 years time! The 6-year-old is still impulsive with money, spending it on plastic rubbish he is momentarily obsessed with.

Once some savings are collected, the idea of emergency funds can be introduced.

-Extra Chores

Our boys are expected to do regular unpaid chores, although I probably should up the ante a bit. They currently feed the goldfish, bring their plates to the dishwasher after each meal and put their own clothes in the wash basket (most of the time).

Both boys can earn extra money when they want to save for something. They get to clean inside the house, pack the fridge with our coca-cola (bad habit I know) or wash the car (badly!)

They could earn their own money from about the age of 2 (long before the allowance started). Despite not really understanding what it was all about, they were really interested in earning those coins. We just had to keep them in a money box out of reach when not closely supervised.

-Opportunities for Spending

I would take them to our local pool regularly between swimming lessons to practice and have fun. They have a kiosk that sells penny sweets and ice poles. The boys always took their wallets with enough money to buy a treat. I would help them work out the money and get them to speak to the kiosk attendant. They still want to go to this pool, years later, because of the sweets!

-Charitable Giving

Kids are developmentally ego-centric between the ages of 2 and 7. Towards the latter end of this age range, a child will start to be able to understand empathy and other people’s opinions. It is a perfect time to introduce the concept of charity. Involve your child in your decision of which charity to support. Your child may like a jar in which they can collect their own money for charitable giving.

How do I Prepare My Children for Financial Success?Ages 7-10

-Shopping

These guys are still watching and learning behaviour from parents. You can explain more complicated concepts such as shopping based on the price per unit, but how sometimes it’s worth paying extra for quality.

– Budgeting

Now is a great age to get them involved in the family finances in a positive way. When you have a special holiday planned, it’s nice to work towards it and build excitement.

Perhaps you discuss how you will fund the holiday. Will you take on extra work? How can everyone else in the family do their bit to contribute? Perhaps by covering some of your chores whilst you are doing the extra work? They may like to save up some spending money of their own to take with them. Help them set a goal and plan to reach it.

-Being Open About Money vs Burdening kids

Obviously, kids should be sheltered from any financial stress at this age. Bringing up the fees for the school you chose to send them to as a guilt trip is not healthy or helpful.

Try and avoid making saving money a negative. When growing up, our family would intermittently go on what my parents called an “Economy drive”. This meant no takeaway meals or other discretionary savings as mum and dad had to tighten their belts for a while. It may have been financially responsible to adjust their spending to ensure they could make the mortgage repayment that month, but it perhaps could have been framed more positively.

-Discussing Bills or Financial Decisions

Sharing some family money decisions can be a wonderful experience. We recently upgraded our solar panels, and the 8-year-old will enjoy looking at the electricity bills before and after. Of course, we also had to find out how solar panels work (ask my 8-year-old, I’ve forgotten!)

-Games

“Guess the price” is a game suggested by Choose FI. Kids have no idea about money initially. $100 seems so huge, they think it’s enough to buy a home. I haven’t tried this idea out yet but may play it with my older child to start developing some rough idea of how much things cost.

Board games such as Monopoly, Game of Life and Cashflow for kids can be enjoyable prompts for kids to learn the difference between assets and liabilities.

How do I Prepare My Children for Financial Success?Age 11-14

-Getting Involved in Family Finances

Kids this age can be quite involved in financial decision making for the family. In fact, there is even a TV series where the teen gets to decide how to handle the family budget for the month! It will take brave parents to put their child in charge of all their finances for the month! But watching an episode with your teen or pre-teen could spark great money conversations.

-Meal Planning & Grocery Shopping

Your child needs to learn to cook, and this can be combined nicely with a financial lesson. Your child should understand how to cook basic foods and prepare a meal for the family before complicating it further. But once they are ready, you could set them a budget for the family meal, get them to plan, shop and cook it.

-Shopping Around and Managing Bills

This may be a good age bracket to involve them when the dreaded car or house insurance renewal comes up. You know you need to shop around to avoid the lazy tax. I know you dread it because it’s a PITA. Consider showing your child bills and discussing if there are ways to reduce them, how it’s best to shop around to get the best price.

At 14 or 15, you may even be able to offload the task of getting a better car insurance quote to them. I know it’s not the sort of thing you had on your bucket list at this age, but you could offer them half the savings as a reward for a job well done.

-Shopping

With shopping, these age kids will probably be asking for products that their friends have. Again, these are opportunities to learn. Perhaps they want a pair of brand name running shoes. They should understand this is a want, not a need. Perhaps you will cover the price of a non-brand name pair, and get them to save the extra. You will find they will prioritize spending far more when it is their money, not yours.

-Chores & Employment

Kids this age should be doing their part around the house, and it should generally not be paid. Perhaps you can keep a few jobs available for payment such as cleaning your car.

But somewhere in this age range, your child may want to find some sort of external way to boost their financial capabilities. It is important to limit pocket money to allow this motivation to occur.

A warning to those that think their kids should focus on their studies and not be involved in work. Although the intention is so honourable, it can backfire. Young adults need to learn the skills important to becoming successful in the workplace. They don’t need mollycoddling (and that’s coming from a self-confessed helicopter parent).

Empower them to cope with competing demands. Grades are only one aspect of their growth into adults.

Before they are old enough to get a regular job, there might be options for them to help out neighbours you know and trust. Teens can wash cars, walk dogs, mow lawns and babysit. Plus probably loads more!

Once they are looking for their first jobs there is a load of opportunities for teachable moments. Helping them look for a job, present themselves and perform well. Make sure they are not being taken advantage of. Help them look at their payslip and check this. Teach them to pay taxes efficiently.

Your kid definitely needs a real bank account now, and you can help them look for the best available. You can help them work out a money management system to capture some savings.

-Superannuation

Imagine if you had been set up with a decent super fund from the start of your adult working life. If you had known to roll over accounts and made sure the fees were reasonable, insurance and asset allocation appropriate. Help your child take advantage of compound investing for the next 40+ years by helping them understand superannuation.

-First Investment

Perhaps this will be superannuation.

Those that want to give kids a leg up with tertiary education costs may be investing for this anyway. Consider involving your child in this. What seems like a huge amount of money to a child may demotivate them to work hard and achieve academically. But I am considering putting $5000-$10000 in a Pearler* brokerage account in trust for each child for them to observe compounding over the decade before they leave home.

Imagine understanding the basics of the stock market, and having developed some volatility tolerance before you even left home!

Some invest money for children’s tertiary education and then offer them the choice of paying fees and living expenses with the money or letting the money continue to compound whilst living off student loans. This is pretty high-level financial literacy for a kid aged 18-20!

Tread carefully with the handouts though. Economic outpatient care appears to be detrimental to a child’s financial success. If possible maintain control over the majority of your funds so you can make a judgement call on whether they will act financially responsible with a lump sum closer to the time.

How much did you understand about money by the time you left home? Do you wish you were a bit savvier as a young adult? How do you plan to teach your own kids about finances? Comment below to join the conversation.

Your wealth accumulation journey starts as soon as you make the first step. Subscribe to Aussie doc for a weekly email to keep you up to date on track to your goals.

Aussie Doc Freedom is not a financial adviser and does not offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

How to Tempt Your UK Doctor Mates to Move to Australia

I did the move to Australia as a naive 2nd year doctor. It was an impulsive move, unusual for me, based on an opportunity that came up to follow a friend. My entire life pivoted on that random decision to bum around (and work) in Australia for a year. I normally love to plan with intentionality, inching ever closer to my “Perfect life”.

For me was a distant 15 years ago now.  Like many poms, I just couldn’t leave the lucky country.  And now, quite frankly, I’m too spoiled to work in the NHS again! The move to Australia was one of the best decisions I have made.

I guest posted recently at The Female Money Doctor, a UK GP with an interest in all things finance. I outlined the Australian health system for UK doctors, and an in depth comparison between pay for junior doctors in both countries.

Check the article out, and share it with the Pommie mates you’d like to move to Australia!

Have any readers’ moved here from overseas? Was it a good move, do you have any regrets?

Best Gift Ideas for Doctors

This post may contain affiliate links. This mean if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.

Have you been racking your brain, trying to find a gift for a doctor? Here is some guidance on buying gifts for doctors, and the very best gift ideas for doctors, with purchasing link. Get your gift chosen confidently and quickly.

Doctors can be difficult to buy for. They are known to earn a pretty good income, and most love to spend it too! What can you buy a doctor you know that won’t break the bank, but is bound to be a big hit?

I will outline gift ideas for doctors from patients, training doctors, family and friends. By the end of the article, you should know what you want to get as a gift, and know where to purchase it quickly and easily.

Best Gift Ideas for Doctors from Patients

If you have received treatment from a private physician, you will have paid the fee for this service. If receiving care from a public doctor, they will receive payment for this service from medicare and/or yourself. This seems obvious, but I feel the need to reinforce that you do not owe the doctor anything.

The most valued gift is one of appreciation. A handwritten note thanking them for their work (particularly if they have gone beyond what they are paid for) really is a wonderful gift to receive. I have still kept letters written by patients years ago. Having worked in both private (briefly) and public medicine, I was struck by the difference in perception and gratitude of patients between the two services! Public hospital and general practitioners are definitely underappreciated! Once patients pay hundreds of dollars for the same doctor and service, they seem to appreciate it far more. From my limited experiences, the rigorous quality control mechanisms public health services use can feel a lot like constant nitpicking! There is little positive feedback received by staff, and it is so appreciated when received.

If you send a letter of appreciation, or a small gift, remember to include the rest of the team. No doctor works alone, and their supporting team of nursing and other staff can get forgotten.

If you are determined to buy a gift, consumable gifts generally go down well so some extra special tea room treats* will never go to waste!

Best Gift Ideas for Doctors from Colleagues

Have you had a supervisor who has gone above and beyond the necessary to support you in what has been a very difficult year? Are you thinking about buying a gift to thank you and looking for the best gift ideas for doctors?

Again, a simple thank you, or card* with a personal note is the appropriate option in the vast majority of cases. Other options are tricky, and may even be uncomfortable or verge on professional boundaries if too generous. YOu may not know much about your supervisors likes or dislikes, and they may have expensive and specific tastes in wine!

If you want to give something, again consumables are probably the most guaranteed to be a success. Coffee is of course the international currency for doctors. If you’re a baker, a homemade cake or biscuits can be shared amongst staff to celebrate your colleague’s awesomeness.

Best Gift Ideas for Doctors from Family and Friends

Do you have a doctor amongst your family or friends that you are looking to buy a gift for Christmas, birthday or another special occasion?

Doctoring can be thirsty work, and I’m sure I’m not the only one who has lost their water bottle…again. Get your doctor friend a personalised water bottle so it’s easy to keep hydrated on a busy shift.

Washing your hands every 5 minutes with hospital soap and rubbing alcohol are so harsh on your hands. L’Occitane hand cream feels really luxurious and this set contains a perfect tube to carry in scrub pockets.

A little pricey, but sure to be appreciated. This gorgeous doctor’s bag could be a wonderful gift from the doctor’s spouse.

If your doctor friend is about to discover nights for the first time (or is struggling with sleep), I thoroughly recommend this super comfortable eye mask. It’s so important to get good rest between shifts, and blocking out the light helps a lot. I have discovered most eye masks are pretty annoying, this is the best I’ve found. It blocks the light really well, has great quality fabric and feels quite luxurious. It will also help the all-important ear plugs stay in!

 

Best Gift Ideas for Doctors who Are Graduating

Your newly graduated doctor is often thrilled with anything Doctor-y! They’ve been studying for 6+ years to finally call themselves a doctor. It’s not cool to show off, but after such an achievement, everyone likes to pat themselves on the back.

A special pen engraved with the doctors title, name and qualifications is a perfect gift for the home desk.

Anatomical jewellery such as this heart pendant are super cool for the budding cardiologist.
This novelty mug would make a perfect secret santa gift for the doctor with poor handwriting!

Best Gift Ideas for Doctors who Are Going on Parental Leave

The Little doctors series are an adorable collection of board books for babies. Here is the link for the Neurology for babies book, but there are plenty more adorable topics.

A book all about baby, and personalised with their own name will be enjoyed over and again.

A beautifully soft and fluffy towel to wrap the precious little one in is a safe present that is practical too.

Best Gift Ideas for Doctors who Are Retiring

Have you been tasked with buying the retiring doctor a fitting gift? If the good doctor is going traveling, a top notch first aid kit will provide all the equipment needed in an emergency.

A good quality pair of ear conduction ear phones are an ideal gift for the active doc who wants to listen to music or podcasts on the go.

Remember, if the doctor is not your friend or relative, a heart felt note will be the most appropriate gift in most situations. There are plenty of suggestions above of the best gift ideas for doctors to choose from.

Get your gift chosen and purchased and wrap it (can I suggest ). Before you go, check out this blog on how to actually stick to a Christmas budget.

Are you a doctor and have other gift suggestions? What is your favourite gift you have received from a patient or student?

 

Saving for Children: Getting Right

This article may contain affiliate links. If there are any in this article they are marked *. An affiliate link means if you click on the link and purchase a product, at no extra cost to yourself, I will receive a small commission.

It costs one billion dollars to raise each child.  Parents need to start saving for children for private school fees before you leave school themselves. 

Just kidding!  The figures quoted online about how much it costs to raise a child can put you off even trying to save!

Children certainly can be expensive.  But the essentials, love and wonderful experiences can be very cheap. 

Families in all walks of life raise children that are loved, balanced and have everything they need.  It’s preposterous to suggest it has to cost tens of thousand of dollars per year.    

But many parents in a privileged position want to give their children a head start.  Private school, tertiary education and first home deposits are all substantial costs.

A better way to look at saving for children is with optimism.  You have a full 18 years until they potentially start tertiary education or buy their first home. 

For those that wish to help financially with these goals, the gloriously long time frame means compound interest is a super power on your side.   Relatively small amounts sacrificed to savings can deliver out-sized results over so many years.

Saving for Children: What is Your Current Financial Situation?

Whenever setting a new goal, it is important to assess your current situation.  Perhaps you are expecting your child in the next few months?  A more urgent requirement to fund your parental leave will need to be planned out first. 

How long a parent is staying away from work, and whether both parents will work full-time will need to be planned ahead.  Plans and circumstances can of course change. 

Do you have any spare cash or are you just going to scraping by as is? 

Many will have to delay saving for children until both parents are back to work.  Don’t fret if this is the case, just make a plan and set a reminder to start saving with your first pay cheque. 

When your children move from childcare to school, cash flow is often freed up (even with private school) and this is another great opportunity to increase savings. 

If you think you will be able to manage on the income you +/- partner will receive after the baby is born and you will be eligible for the paid parental leave from the government this can be used as a great starter fund.

$753.90 pre-tax for 18 weeks is available for mothers or adoptive parent earning less than $150,000 the financial year before birth.

This is a massive help for mothers not eligible for paid parental leave through their employer, but unfortunately does disadvantage families with a primary earning female. 

Fathers can be earning $1M+ and the mother remains eligible for paid parental leave as long as she earns $150,000.  Mothers can earn $151,000 with a non-working partner and be ineligible for the payment. 

Assuming a 37% tax rate,  this is over $8500 in total post tax.  It’s an ideal starter fund.

A common error in getting excited about saving for children is to neglect to ensure you’re on track for retirement first. 

It would be terrible in a decade or two to fund your child’s tertiary education, but then resent having to work extra years after you’re psychologically ready to retire.

For those lucky enough to have surplus cash, a little extra into the superannuation of the parent taking leave may be your best move.

Saving for Children: What Are Your Goals?

– Private School

There are some terrifyingly high fees charged for private education. Unfortunately there are also less years available to save for this goal. 

Consider carefully whether your child will really receive the value from a fancy school (over more time with their parents) before committing to these huge expenses.

If you find the fees more onerous than you had imagined, you will likely to reluctant to uproot your child if they have settled in well and made friends.

Buying or renting in a great catchment area can be a better option (depending on property prices)!   

Fees tend to increase in secondary school, so this is a common savings goal for new parents. 

You can find school fees for the school(s) you are considering on their websites.  Work out how much it will cost per child and calculate your savings goals accordingly.

One strategy the Aussie Doc family have found useful is to maintain saving the freed up costs from daycare fees when our kids started school.  They do attend a private school, but a reasonably priced one.

– Tertiary education

Tertiary education is a great long-term goal, but no new parents realistically have any idea whether their child will want or need it. 

Many parents choose to save as if the child is going to attend tertiary education, but use the savings for a house deposit or other start up fund if the children choose not to go.

It is difficult to estimate costs for tertiary education.  They will obviously change over the next 18 years, and have been increasing at above inflation level. 

Children can always borrow to fund their studies, so it is not essential to have all (or any) of the fees saved.  Whatever you have saved for them will be a generous gift.

I started by looking at my local university fees, assumed each child would attend medical school (worse case scenario fee wise I think) and set my savings goals to achieve covering these inflation adjusted fees in 18 years time. 

I’m hoping our fund will cover their tertiary education fees and maybe some extra (assuming they don’t both go to medical school) to fund living costs. 

Most importantly, I hope to give them a gift of a financial education, and the option to invest their fee savings to start their investment journeys.

– House Deposit or Start up Fund

With Australian house prices escalating by the year, many new parents worry about their offsprings’ ability to purchase a home one day. 

Helping your children to afford their first home is a wonderful thought, but doesn’t have to be financially burdensome. 

Becoming guarantor for your child will cost nothing (or a small amount of fees) but allow them to skip a decade of saving a deposit.

Your kids will need to prove a good savings ability to the bank before being approved for a loan. 

Gifting everything to children without them having to work hard and learn themselves, I think has been well proven to be a terrible idea.  

Tertiary education costs saved but not used, however can be used to start a home deposit or starter investment fund or business. 

If your child will not handle these funds effectively, they may be best redirected to your retirement savings! 

Few 20 year olds can realistically handle large sums of money without significant financial education over many years prior. 

– Inheritance

Hopefully the reader will live to a ripe old age! 

Your children will, if things go according to plan, be at least into their 60s by the time you die. 

An inheritance in your 50’s or 60’s I’m sure will be gratefully received, if you choose to bequeath it.

But it has nowhere near the potential of smaller gifts in your 20s, when it can be invested for compounding growth for decades before retirement.  Many 20 somethings have blown an inheritance however.

In your child’s 30’s they have hopefully developed more maturity, financial literacy and perhaps large expenses with home ownership and starting a family.  

Starting an investment for grandchildrens education is yet another time to help your kids out.

The best timing for a financial gift probably depends very much on the individual child and how they will handle their money at that time of life.  The best gift of all is to teach them how to grow their own money by learning to “invest like a girl“.

Saving for Children: Taxation

The government are keen to make sure parents aren’t hiding their savings and earning interest tax-free in their child’s name.

Tax on your child under 18’s interest or dividends is therefore 66% (yes that’s correct!) on interest/dividends earned between $417 and $1307 per year.

You should actively avoid breaching this limit obviously. 

Income from employment is considered exempted income and is taxed at adult rates. 

$417 annual income is hard to earn in children’s bank accounts, but if you are investing in shares in your child’s name it is likely you will breach this limit fairly quickly.  

If your child will earn more than $120 / year you will need to apply for a tax file number on their behalf in order to stop tax being withheld and needing to submit a tax return.

Discretionary (Family) Trust

Discretionary trusts are a way to structure your investments.  Trusts come with advantages for

–              Asset protection (especially if both parents “at risk” occupations)

–              Income can be split amongst adult beneficiaries reducing tax burden

–              May offer some protection from future divorce settlements for beneficiaries

–              Don’t have a preservation age

Disadvantages of discretionary trusts

–              Involve setting up fees ($2000-3000) and annual fees ($1000-2000)

–              Can be taken into account in beneficiary divorce settlements and assets outside trust used to compensate

–              All income must be distributed (and taxed)

–              Losses cannot be claimed against other incomes (can’t negative gear)

Assets within discretionary tests have to be distributed to beneficiaries when the trust ends, in 80 years. This may cause a potentially large taxable event.

Special Disability Trust

If you have a disabled child, look into and get independent advise about benefits of a Special Disability TrustThis article on the special disability trust gives quite a lot of detailed information and seems a good starting point.  If you think your family are eligible and it sounds appropriate, these are complex arrangements and would require independent financial and taxation advise.

Saving and Investing for Children: Options Available

Childrens’ Bank Accounts vs Home Loan Offset

There are no current children’s bank accounts paying interest that beats interest rates saved in a owner occupier mortgage offset. 

If you have a mortgage, your offset is likely the best place to save for children’s school and kindy fees.

At times, you can get better interest rates with childrens’ bank accounts.  A quick google search will help you identify the best deals each year. 

A few years, I opened a bankwest account paying 5% and CUA account paying 3.75%.  These accounts often have multiple conditions to meet each month to qualify for the interest. 

Aussie Doc has devised a complex system where savings circulate between the kids’ savings accounts and mortgage offset to meet all the conditions and earn (as Barefoot would say) a bee dick’s more interest.  I like to beat the system (queue evil laugh) and overthink things.

Interest rates however change, even after you have the account set up, meaning it’s not a set and forget strategy.  You need to check the interest paid at least annually and potentially open different accounts to continue to get a better deal than your mortgage offset.  For the sane, it’s usually not worth the hassle.

Your home loan with 100% offset account is an ideal way to save for next year’s school fees and for longer term savings for those with a low risk tolerance, or if interest rates increase.

Investing in Shares for Children

With such a long-time frame, investing in the share market is an option for saving for children for secondary school, tertiary education, home deposit or starter fund. 

Options include an ETF or index, listed investment company eg AFIC, or an insurance/ education bond.

ETFs and Index Funds

ETFs are brought via the ASX, using a broker such as Commsec, Selfwealth or Pearler

Commission fees are charged to buy and sell.  This can be expensive if you are buying in small parcels (for example with each pay). 

ETF management fees are generally cheaper than index funds. 

Index funds are purchased without commission fees but annual fees are higher and there is usually a minimum starting amount associated with index funds (but not ETFs).

Selecting funds themselves can cause long term procrastination, however.  If you are interested in investing and want to design your own portfolio, immerse yourself in research for a limited amount of time, make the decision, write a plan and stick with it.

Alternatively, you could ask a carefully chosen independent financial adviser to design a portfolio.

Robo-advisers are the easiest way to start investing with tiny amounts if you just want to get started, but due to the extra layer of fees on top of the underlying fund fees (from 0.26% extra) they are not the cheapest way to invest long-term. 

These fees seem tiny to begin with, but compound to significant amounts over the years. 

Having said that, they are a great way to get over the procrastination while you work out if the funds suggested by the robo-adviser are what you want to invest in long-term.

Remember, if you wish to sell the funds from your robo-adviser account and invest in funds independently, you will need to pay tax on any capital gains.

Some robo-advisers allow you to label some or all of your investments for children, although for taxation purposes the shares are considered owned by the adult opening the account.

Listed Investment Companies (LICs)

LICs are actively managed fund with fees almost as low as those for an ETF. 

They only cover the Australian market, so are not diversified enough to make up your entire portfolio. 

Australian Financial Investment Company (AFIC) and Whitefield LICs allow “Dividend substitution”. 

This means, instead of receiving dividends (with franking credits) and paying tax on that income now, the company provides you with an equivalent amount of extra shares and defer taxation. 

This results in capital gains tax eventually (discounted 50%) and if withdrawals can be timed when you are on a lower marginal tax can be advantageous for high income earners.       

Insurance and Education Bonds.

These are more complex products, aimed at high income earners.  Both are associated with higher fees and have a history of under-performing the index, so I would only consider if both my partner and I were on the top marginal rate of 47%.

There are complex rules associated, and the fees associated need to be examined carefully. 

They generally have tax benefits if the investments are withdrawn out after 10 years, with investment bonds paying tax at a company rate (30%) but eligible for the 50% capital gains discount that individuals benefit from. 

Earnings from education bonds are again taxed at company rate (30%) but if earnings are withdrawn after 10 years for education purposes (including books, uniforms, rent at university and HELP fees), this tax is refunded to the investor. 

This potentially tax free return sound enticing, and I did open one a few years ago.  The fees are a major drag again, with Australian Unity’s life plan education fund charging 1.73% management fees and requiring a financial adviser to open the account for you. 

If withdrawals are not used for education costs, tax benefits are lost. As a result, if your children don’t attend tertiary education, you may benefit nothing from tax benefits and all of the high fees.

Case Presentations

Jill & Jane – High Income Couple

John and Jill are both specialists with strong incomes of around $400,000 each. They have two children, aged 3 and 6 High Income single parent/ Double High income.  Both would pay 47% tax on any investment income in their own names.  The kids will pay 66% tax on investment income over $420/year each.  John and Jill save the kids school fees in their mortgage offset saving them 3% interest tax free.  For longer term savings for tertiary education appropriate options would be:

  • Mortgage Offset 6%+
  • LIC inside a family trust for asset protection and ability to distribute income to children once the children turn 18. If the family opt for a LIC that allows dividend substitution (not dividend reinvestment) all income through dividends can be deferred until the children turn 18 and can receive income taxed as capital gains (50% discount once the tax-free threshold has been reached for each beneficiary).  The amount invested would have to compensate for the fees associated with setting up and maintaining the trust. 
  • Education Bond

I calculate that if the education bond fee is 1.73% and LIC management fee 0.3% of invested amount and the cost to maintain the family trust is $2000 annually

Bob & Barry: Moderate Income Household

Bob and Barry are parents of a rambunctious 3 and 6 year old.  They are working full-time for the foreseeable future, earning around $140,000 each.  

Both these parents will pay a marginal rate of 37%. Again, their children will pay a punishing 66% if the earn more than the $420 investment income cut off.

Here their options are

– Mortgage Offset

– Index fund / ETF / LIC without trust

– Education Bond

Low Income Parent 0% Marginal Tax Rate

Susie and Sam are parents of 3 and 6 yr old kids.  Sam is planning to stay at home with the kids for the long-term. 

Sam can earn up to $18,200 in investment income and pay no tax.  The best options for this family are likely to be

  • ETFs/Index funds/LIC without trust
  • Mortgage Offset at 6%+

Their focus should be on building an diversified investment portfolio whilst minimizing fees.  Sam can likely invest up to around $300,000 before he would expect to start paying any tax (depending on investment chosen).

Because of  the absence of taxation (up to to the income threshold), the couple can really take advantage of the higher returns associated with investing directly in a low cost index fund.  In comparison with the high income couple, they are able to accumulated $12,000 if both couples invest $5000 per year for 15 years.

Asset protection should also be considered, but the lower earning spouse is often the lower risk.

How you can best save your children depends on your overall financial picture, goals and marginal tax rates.  Most advantageous options also depend on the amount invested and the time frame.

Use this article and examine your long-term financial position to decide on your best strategy. 

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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How to Pay it Forward: 5 Ways to Make the World Better

How to Pay it Forward: 5 Ways to Make the World a Better Place

Medical professionals as a group have power to change the world.  We are highly educated, fairly well-respected individuals with good to great compensation and plenty of resourcefulness. 

In what way do you want to impact the world? What is your legacy going to be?  The impact can be individual, through donations and kindness, or by joining together in advocacy groups, we can be even more influential.  

  1. Donate effectively
  2. Use your time to improve the world
  3. Form environmentally friendly habits
  4. Make your immediate world a happier place
  5. Leave a legacy

1. Donate Effectively

A lot of doctors would love to spend time performing humanitarian work, but life’s commitments mean this is unrealistic for many.  Twice the doctor  has a powerful idea – donating a day of earnings to charity can be a more effective way to make an impact with your time.  

Choose a Charity

There are over 1.5 million non-profit organizations, which makes choosing one to support overwhelming.

Instead of donating to random tin shakers or Go fund me pages, I like the idea of researching the choice to ensure my donation makes a real difference.

For charities that will make the most positive impact, Give Well and Effective Altruism have shortlists that provide maximum impact per dollar donation.  Their methodology is outlined on the websites.

Others want to donate to particular charities, due to personal interest or in honour of a loved one. Change path  has a tool that will shortlist charities based on your preferences.  You can’t get much easier than that!

Check the Charity is Legitimate

Before you donate to a charity, it is important to check its legitimacy. Unfortunately, many unscrupulous individuals have defrauded charities, posed as collectors and even faked illness for Go Fund Me pages.

Australian charities should be registered with the National Charities and Not-For Profits Commission (ACNC).

For lesser known charities, or those based overseas it is worth checking Scam Watch.

Check the transparency, financial sustainability and privacy behaviour of your favoured charity at Change path

I‌ find it very annoying, and stop donating to a charity if it pesters me with phone calls.  Consider asking on your social media page if anyone has experience with the charity you are considering donating to.

Make sure it’s tax deductible

Choosing a charity that is a tax-deductible gift recipient allows you to donate a lot more to your worthy cause.

To receive a deduction, it must be claimed in your tax return for the income year in which the donation was made. You cannot receive products (eg charity calendar) in exchange for your donation if you wish to receive a tax deduction.

Consider A Donor Advised Fund Before Retirement

For those about to permanently step down in to a lower tax bracket, look in to donor advised funds.  These allow a one-off donation of at least $10,000 in cash, shares or property. The donation is eligible for immediate tax deduction in the current tax year and rate, but funds are allowed to continue growing, to be donated to chosen charities every year.

Should You Sponsor a Child?

Child sponsorship is appealing to many due to the personal relationship developed between sponsor and child.  
It seems a more relatable way to introduce children to charitable giving – and helps them appreciate the privilege they were born in to.

There have been controversies surrounding child sponsorship, including concerns that the favouring of a single child in a family or community may lead to resentment and relationship breakdowns.  Most charities have moved away from providing a single child with financial support in favour of using donations to improve conditions for the community and family in which the child lives. 

It is important, if a personal relationship is developed through letters, that this continues until the end of the program (when the child turns 20 or 22).  The positive benefits of hope, and the comfort of knowing someone elsewhere in the world cares about the child would be devastated should the sponsor lose interest and stop writing.

It is also vital letters written are sensitive to the child’s family – including the other members, and culturally appropriate.

Compassion is a Christian organisation providing old school individual child sponsorship through‌ Africa, Asia and Central/South America.  The University of San Francisco undertook a study in to the outcomes and found children sponsored by Compassion were 42%‌ more likely to finish secondary education, 83%‌ more likely to complete university, were more likely to become leaders in their communities.  

ChildFund and World‌Visionhave a hybrid approach.  They still allow the personal side of sponsoring a specific child, writing letters between sponsor and donor.  But sponsorship funds are pooled for the whole community.  Both organisations allow supervised visits for sponsors and donors to meet, fully funded by the sponsor.  

Donate Your Car

Kids Under Cover collect donated car from Melbourne, Sydney, Newcastle, Brisbane, Townsville, Adelaide, Perth, Darwin, and Hobart (and may collect from outside these areas if you call and ask).  

They sell the cars at auction and use profits to prevent youth homelessness. You can tax-deduct the sale amount or if your car has a market value of more than $5,000 are eligible for a tax deduction based on an ATO valuation.

2. Use your time to improve the world

The Medical Evacuation Response Group Merg.com.au is a group of doctors advocating for refugees with urgent health needs.  The bill to repeal the legislation is being debated this month, but regardless I suspect the group will continue to passionately advocate for refugees with health issues.  Contact the group through the website if you are interested in joining the fight.

Have another issue close to your heart? Find like minded people and start your own group.

Voluntary work is something many of us would love to do, but feel we can’t commit to the usual requirements because of jobs and families.  Médecins Sans Frontières is the best known volunteer organization for doctors.  Volunteers must be able to commit to a minimum 9 month placement and meet their eligibility criteria.

There are volunteer organisations that offer much shorter trips, possible to go in your annual leave.  YMAM‌‌ Ships  visits PNG‌ on short tours (2 weeks), working with local health services to offer quality training and medical care.  They even accept a limited number of families of volunteers on board. 

Australian Doctors International organise doctor volunteer placements in Papua New Guinea for 2-6 months

Non-medical volunteering is another option – helping at your child’s school, at your local library or online.

Consider how your career can help you change the world in a positive way.  Some junior doctors aspire to be public health specialists for this reason, but no matter what you’re interested in, there is likely a way you can use your expertise and experience to improve the world.

Fred Hollows saw an opportunity to help and his organisation has saved the sight of over 2.5 million people to date.  What a legacy!

3. Form environmentally friendly habits

I know many of us would like to do more help the environment.  It’s probably easier to think about one area of your life, form new habits that are more environmentally friendly and then move on to the next

Grocery Shopping

Plastic bag bans are in for good- so remember your reusable bags or put the food back in the trolley unbagged (I often leave mine in the car).  Collapsible crates/boxes kept in the car are an alternative to bags.

Despite the plastic bag ban, there are still plastic bags in the produce aisles, find some bags at home, make some out of fabric around the house, or do without (fine for larger items)

There is also PLENTY of plastic wrapping in every aisle of the grocery store.  Avoiding packaged food is good for your health, your wallet and the environmental so try and avoid packaging wherever you can.

Try and actually use all the food you have brought – thinking about land clearance to grow food, transportation to the supermarket and your home, it is extremely wasteful to buy food and throw it away when it has gone bad.  Work out a meal plan (recurring weekly or fortnightly plans make life easier), use leftovers originally (frittatata, pie, omelette).  I have a labelled “Leftover” shelf in the fridge so its easy to see what needs to be eaten and food doesn’t get lost.

Consumerism

Labelling new trendy products with “Eco-friendly” sells well, but clearly is far less environmentally friendly than using what you already have.

Pause and consider whether your purchases are really necessary.  Try and use items until they are truly worn out.

When you do need something new, can you give a used item a second life?  Buy used when you can, and donate items when you no longer need them (Kids clothes and toys!)

Borrow when you only need something for a short time – the library is a wonderful community resource.  Try sharing rarely used items with neighbours so you don’t each have every item to store.

Use Less Fossil Fuels

Walk or cycle instead of driving when you can.  Buy a fuel-efficient car and try not leave the car loaded with heavy items you don’t need 

Turn the lights off at home when no-one is using them, turn electrical items off at the wall rather than leaving them on standby. 

Solar panels are expensive to put in, but could save you money long-term if you are staying in the same residence for 5-10 years. 

When you have to replace appliances (when they are broken, not because you have refurbished the kitchen and want to burn some extra cash!) consider the energy star rating

Remember to bring your keep cup and water bottle!  Label with your name and form habits so you don’t lose it every week and have to buy another!

Recycle – do you have a functioning system for recycling at home and at work?

Christmas

Sustainable living have a few tips on how to improve your traditions to make them more environmentally friendly.  

4. Make your immediate world a happier place

At home, conversations with our spouse and children can become very functional.  It only takes a few moments every day to strengthen your connection and brighten someones day.  Remember to appreciate your spouse, spend extra playtime with your children, and talk to them about their day, their thoughts and interests (no matter how ridiculous).

At work, be the happy face everyone is pleased to see (even if you don’t feel like it), take the extra minutes (when you can) to chat to your lonely patient rather than getting a coffee, and find out a little about your colleagues.

In the rest of life, give way more when driving, spread kind words regularly. Challenge yourself to make someone else’s day every day!

 

5.
Leave a Legacy

You can bequeath a percentage of your assets to your favourite charity. Charitable gifts in Wills of property, stocks and shares are exempt from capital gains tax.

Organ donation is probably the greatest gift you can give, with the potential to save several lives.

Register on the donate life website (or check you are registered) and talk to your family about the decision

Hopefully this article has given you some new ideas (or reminders) of how you can make a positive impact. I’m still working on many of the habits!

Do you belong to an advocacy group you would like other doctors to know about? Or have a favourite charity you wish to share?

Add your comment below with your great ideas


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