Article written by Robert Watson/ Watson and Sons Advisory

If you have kids, teaching them how to manage their money is your job. We want you to enjoy your parenting, and we want your kids to enjoy managing money. So here are our top tips for teaching kids about money.

Understand that they are watching you. Managing money is not just about words and numbers. Many things affect whether a person manages money well. These include things like temperament, personality – and whether people learn to spend money in order to feel better. (Retail therapy, anyone?)

Guess where kids learn about this ‘emotional’ side of managing money? By watching their folks at very close quarters for the first couple of decades of their lives. Like it or not, your kids will grow up to be very similar to you and their other parent. So the absolute best way to teach kids to manage their money well is to manage your own money well.

If you are not great at managing money yourself? Learn! It’s fun, very useful and your kids will thank you for it one day.

Don’t bother with kids’ savings accounts. Many people set up specific savings accounts for kids when they are born. These accounts usually pay virtually no interest – making them just about the worst place for the family to put money. Think about it: mum and dad are paying 5% (after tax) on their mortgage while junior is earning at most 1.5% (essentially also after tax) on their savings account. That makes no sense. Put the money into mum and dad’s mortgage (or an offset account) and help the family be wealthier.

Let’s say the grandparents get together and give $1,000 to a newborn baby. If mum and dad repay $1,000 off a loan with an interest rate of 5%, then they will save $1,653 in interest by the time bub turns 20. If bub invests it at 1.5%, he or she will make just $340 over the same period. Repaying the mortgage is almost 5 times better.

Remember what we said about the kids watching you? Well, don’t let them watch the family do something dumb. Manage the money well and when the time comes, explain your thinking to the kids (see our last tip below).

And hold off on the savings account until the kids are old enough to make sense of them. Until then, let them handle cash.

Let them blow a little bit now and learn how bad that feels. The other problem with savings accounts for really young children is that the money is in an account that the kids can’t touch. The thinking is that, if the kids can’t touch it, they will become automatic savers. That is not actually correct. If the kids can’t touch the money, then they are not actually saving it. (That is why compulsory super gets ‘locked up’ until you retire).

Learning to save means actively deciding not to spend. You can only decide not to spend if spending is an option. So, the money needs to be available to be spent if the kids are really going to learn how to save. And if spending is an option… then blowing it is an option as well.  All kids will blow some money at some stage. Don’t worry when they do. Let them feel bad – and don’t bail them out!

After all, feeling bad is a great teacher. Letting the kids feel a little bit bad now is better than letting them feel very bad later in life – when they blow a much bigger amount.

Let your older kids sell stuff second hand. This is a great tip for getting kids to look after things of value. Things like school text books, uniforms etc can often be sold secondhand online. The better the condition, the higher the price. So, if you want your kids to look after their stuff, let them sell the stuff and keep the cash when they no longer need them.

There are a number of benefits here. One is that the kids are encouraged to think long term – what I do in February will have an impact on my cash flow in November. This is a really important lesson to learn (especially if they ever end up running their own business).

If you can get your kids thinking in terms of months and years ahead, you are 75% of the way there.

Secondly, if they look after their things, they will be less likely to need to buy replacement things.

Tell them you can’t afford something. (Even if you can). There is nothing wrong with kids learning that there is a limit to what can be afforded. Kids are growing up in a consumer society that tells them to buy all the time. There is nothing wrong with learning that they can’t afford everything. So telling kids that you can’t afford something won’t bruise them – it will liberate them.

You do need to contend with your own ‘peer group pressure’ here. Who likes to admit that they can’t afford something? But try it. And recommend it to your friends as well. It might liberate them too!

Comedian George Carlin is credited with pointing out that “We buy things we don’t need, with money we don’t have, to impress people we don’t like.”  Not a great lesson to teach our kids.

Buy quality. The flipside of not buying “things you don’t need” is buying quality things that you do need. So, if something is a genuine need, like good food or a safe car, then buying the best quality you can afford is a great lesson. Very often, in the long run, the better quality thing lasts longer and ends up costing less anyway. That great deal on a car that turned out to be a money pit (and a health hazard)?

Remember, no one ever saved a lot of money buying home brand jam. If you are going to buy jam, buy the good stuff. But if you don’t need the jam…

Put up a no junk mail sign and watch the ABC. OK. This might sound a bit extreme. But kids are bombarded with messages to buy things.

Some estimates are that kids see 10,000 TV ads during their childhood. This is a lot of messages telling them to ‘buy.’ So, think about how you can give your kids a break from relentless messages to spend that commercial media gives them.

Remember, for a lot discretionary spending, out of sight means out of mind.

Maybe Netflix is a happy compromise. No ads.

Teach them their reading, writing and arithmetic. ‘Financial literacy’ is a buzzword these days. But financial literacy is really just a combination of two more basic skills – everyday numeracy and everyday literacy. Trust us, if kids are good at maths, this will translate to understanding money.

If they are not good at maths, work on it. And use money to teach them.

Explain. Explain. Explain. Talk to your kids about money. Explain that you have a mortgage and what that means. Explain when the media announces a famous person declaring bankruptcy. Explain how taxes work. Explain how credit cards work when you are ‘tapping and going’ at the supermarket.

Explain big things about money and small things about money. Teach the kids that marketing can be sneaky. Tell the kids that it costs the cinema the same amount to make a small or a large popcorn. The cost of making the popcorn is basically nothing. But by offering two prices, the cinema gets to sell something ‘small’ to people with a little bit of money and sell something ‘big’ (and more expensive) to people with more money.

You knew that, didn’t you?

Do you have your own tips? There might be some things that you have come across yourself that have helped you teach your kids. Please let us know – we would love to hear about them.

The information on this posting contains general information and does not take into account your personal objectives, financial situation or needs. It is important that you consider your own situation before acting on any information contained in this blog post.

We recommend that you consult a licensed or authorised financial adviser, if you require financial advice that takes into account your personal circumstances.

Click here to get in touch with our affiliate Advisory firm, Watson and Sons Advisory.

 

The threat of a full-blown trade war has escalated in the last few weeks with the G7 Meeting ending in disarray over US Tariffs on imports of steel and aluminium from its allies and more importantly President Trump threatening Tariffs on (so far at least) $US450bn of imports from China, and China are threatening to retaliate.  Our base case remains that a negotiated solution will ultimately be reached, but the pain threshold in the US is clearly higher than initially thought and the risks have increased……

head over to our affiliate page Watson and Sons Advisory to read the full Article

How we can use legitimate tax deductions to minimise your taxes.

       The Clock is Ticking………

 

Once again we are at the end of another financial year.

 

The key items that we all need to consider before 30 June, 2018 are as follows:

Key Superannuation Points to Consider;

 

• Superannuation Contributions 

This year we are looking to supplement the SGC contributions to your Super fund with another contribution from you personally to maximise your concessional contribution up to the $25,000 limit.

The additional contribution can be claimed as a tax deduction in your personal tax return.

This will allow you to minimise your personal tax and make further savings for the future into your super fund.

Please note the current before tax cap on personal deductible contributions is $25,000 per financial year.

To claim a deduction, you must give notice to the trustee of your super fund and have it acknowledged in writing before it can be claimed as a deduction.

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• Non- Concessional Contributions – Superannuation

 

An after Tax non concessional contribution can be made of up to $100,000 or $300,000 over a 3 year period.

If your contributions exceed $1,400,000 please discuss with us as you may not be able to make further non-concessional contributions under the new transfer Balance Cap Rules.

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• Government Co- Contribution – Superannuation

 

In the 2017/18 Financial year, if you are the middle to low income earner, adding to your super from after-tax money could see you entitled to a government co-contribution worth up to $500.

To be eligible you need to earn less than $51,813 in the 2017/18 Financial Year and be aged below 71 at 30 June 2018. You must also have a total superannuation balance of less than $1.6 Million at the start of the financial year to be eligible.

The maximum co-contribution of $500 is available if you earn less than $36,813 in the 2017/18 Financial year and if you have made a contribution yourself of at least $1000. The co-contribution steadily reduces as your income rises, and until it reaches zero at an annual income of $51,813.

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• Spouse Super Contribution Tax Offset

 

If your spouse or partner’s assessable income is less than $40,000 in a financial year and you decide to make super contributions on behalf of your spouse, you may be able to claim a tax offset for yourself.

The maximum tax offset available is up to $540 if your spouse receives $37,000 or less in assessable income in the 2017/189 financial year. The tax offset is progressively reduced until it reaches zero for spouses who earn $40,000 or more in assessable income in a year.

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• First Home buyers – Superannuation

 

You may be able to make voluntary superannuation contributions to use towards a deposit of your first home, under the First Home Super Saver Scheme (FHSSS) starting from July 1 2017. Voluntary contributions you make, plus associated earnings, can be accessed from 1 July 2018 subject to meeting eligibility criteria. Whether using concessional or non-concessional contributions, the total amount of contributions you can withdraw is capped at $15,000 a year (or a maximum of $30,000 in total).

Superannuation Guarantee contributions, as well as contributions that don’t count towards or are in excess of the contribution caps, cannot be accessed under FHSSS as part of your deposit.

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• Downsizer Contributions

 

From July 1 2018, if you are planning on downsizing your family home of ten years or more and are aged 65 or over, you may be able to contribute up to $300,000 from the sale proceeds to superannuation as a downsizer contribution. If you have a spouse they could also contribute up to $300,000 to their superannuation from these proceeds.

Downsizer contributions do not count towards your before or after-tax contribution caps or caps on contributions for total superannuation balance. You can find out more about whether you might be eligible at ato.gov.au

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Key Elements to consider for your Company Tax;

 

Asset Write Off for Small Business

 

The extension of the federal government’s instant write-off scheme for another 12 months to 30 June 2019 was a welcomed part of the budget this year.

To recap, a small business with an aggregated turnover of less than $10 Million can claim an immediate tax deduction for assets costing less than $20,000 (GST inclusive). This includes individual assets that form part of a set. The immediate write-off applies equally to the purchase of new and second-hand assets which are used in the business.

In the interests of maintaining positive cash flow, you should consider making these purchases now to minimise the time between purchase and tax deduction.

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• Tax Rate reduction

 

From 1 July, company tax rates will be reduced from 30 percent to 27.5 percent for companies with turnover between $25 Million and $50 Million.

As a result, where possible, we should be assisting with urgent tax planning now to bring expenses forward to this year, or delay the derivation of income until next year.

Linked to this, with the decrease of the corporate tax rate for small businesses, the maximum franking credits that can be allocated to dividends will also decrease from 30 percent this year to 27.5 percent next year and beyond. Ideally, we should be sitting with you to review the franking account position to assess whether it is better to pay out franked dividends this year. If not addressed, businesses may end up with excess franking credits which will be largely useless.

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• Single touch payroll

 

Following the urging of the ATO, employers with 20 or more employees should be acting now to ensure they are prepared for Single Touch Payroll (STP).

When fully rolled out, employers will need to report their employees’ tax and super information to the ATO through payroll software that is STP ready.

This will come into effect from July 1 2018, therefore it is something we need to be prepared for now.

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• Small Business – CGT Concessions.

 

 In the event that you have been able to sell your Small Business you can minimise any tax payable but you need to satisfy a series of tests and be under the $6million dollar Limit for yourself and your spouse.

The tests are the Active asset test, the 15 year exemption, and the Retirement exemption with a limit of $500,000 per person. A Total cap to go in super of $1,445,000.

The benefit is that the amount contributed to the fund will be treated like a non- concessional Contribution (not taxed in or out)

 

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• Super Balance less than $500,000

 

 From July 1 2018, if individuals have a total superannuation balance of less than $500,000, they will be able to ‘carry forward’ any unused amount of their concessional contributions cap. The unused concessional contributions cap can be accessed on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

For their employees, employers should consider bringing forward June quarter superannuation payments one month early. This will get it all squared off, allowing businesses to start the year afresh. 

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• Super Guarantee Amnesty

 

 It’s also worthwhile reminding you of the Superannuation Guarantee Amnesty. If an employer has been concerned about whether they have been contributing the correct amount of superannuation now is the time to act!

On 24 May 2018, the government announced a 12-month Superannuation Guarantee Amnesty, which provides a one-off opportunity for employers to self-correct past SG non-compliance without penalty.

Of course, employers will still be required to pay the unpaid SG amounts owed to employees and the nominal interest, as well as any associated general interest charge. As is typically the case with amnesties, if you haven’t been doing the right thing and don’t come forward during the amnesty period, you can expect to pay higher penalties in the future if subsequently caught.

The amnesty does not apply to the period starting on April 1 2018, or subsequent periods – thus, current EOFY planning needs to include a review of superannuation payments on behalf of employees since 1 April 2018 to ensure everything is in order. This is going to be on the ATO’s radar come the end of the amnesty, so if you have any concerns, ensure you arrange a review with us now.

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With significant changes taking place we all need to focus on what events may affect us or our businesses

• There are new reporting requirements for all SMSF with Funds in Excess of $1million on a quarterly Basis.
• New tax scales and lower super limits.
• The ATO is targeting all Deductions and requiring evidence in many cases. The ATO is also looking to control Payroll and SGC contributions with the new single touch payroll requirements with all employers required to lodge monthly by 1 July, 2019.
• We are all living in a new technology driven environment.

 

If you would like to discuss any of the foregoing please give us a call.

 

Best wishes for the new tax year.

 

 

Regards,

 

John Watson