Wednesday 31 August 2022

DS2 started his first proper job

DS2 is in Year 10 and recently picked his subjects for Year 11 (and hence what he will be studying for his HSC exams/ATAR score for uni - English (with Extension 1 and possibly Extension 2), Mathematics (with Extension 1), Software Design & Development, Economics, and Business Studies). Unlike DS1 he has cut back on a lot of his previous extracurricular activities - dropping out of piano lessons and Judo classes (he still does Kendo) and not wanting to bother doing the Duke of Edinburgh awards via school (which involves some volunteering, skills activities, and some weekend/short camping/hiking trips). He has a girlfriend and is quite keen on Volley Ball (the school junior team he is in won the zone final and will be competing in the District comp next term) and he seems to spend a lot of time chatting with friends via Discord and playing online games (how he manages to still get good grades at school is a mystery).

He has reached the age where he would like some extra 'spending money' and decided that earning $10-$20 doing a bit of busking on the weekends just wasn't adequate. Unfortunately the local newspaper has gone 100% digital, so a 'paper round' was no longer an option. He had a brief go at letterbox 'junk mail' delivery last year, but decided that spending many hours over two evenings each week collating bundles of hundreds of flyers into individual sets (OK, I actually ended up doing most of the collating!) to be delivered, and then spending 3-4 hours walking around a local suburb delivering the individual sets was too much time and effort for only earning around $50-$60. I've frequently regaled him with my tale of working on weekends at a market garden for only 60c an hour when I was in high school - but for some reason I think that gave him the impression I was an idiot, rather than the intended example regarding the value of hard work.

So he dropped the delivery job and decided to get a job at McDonalds instead (the minimum wage of around $15/hr for his age group is a lot better than the 'piece work' rate paid for letterbox delivery work). In his first attempt (last year) he got through two rounds of interviews with McDonalds, but was then never offered a position (probably due to having limited shift availability at that time, plus the reduced staffing needs during the Covid pandemic lock-downs). He recently applied again, and this time he was offered a position and did his first 'training shift' (3 hours) last Tuesday. In future his shifts will be at the local Maccas that is only a five minute walk from our house, but for this initial training session he had to attend a specific McDonalds store that is about 30 mins drive from our home. I drove him there, and since it wasn't really worth driving home again when I'd have to return to pick him up a few hours later I did a couple of hours of Door Dash delivering in that area while he was doing his 'shift'.

DS2 expects to do two or three 4-hour shifts every week, so he should earn around $180 per week for about 12 hours work. He's agreed to only spend 25% (roughly) of his wages on "everyday" spending (games, movies, whatever he fancies) and to save 50% (roughly) for longer-term goals eg. saving up for an overseas trip when he finishes his HSC exams (I bought DS1 return airfares for a trip to Europe when he finished the HSC, but he had to cover his own spending on backpacker accommodation, train fares, food etc. and will do the same for DS2 as a 'graduation present'), a new laptop computer, a second-hand car when he starts uni, etc. After a bit of "negotiating" (aka disagreement) DS2 agreed that the final 25% of his earnings should be invested, with $1,000 being contributed into super as an undeducted personal contribution (so he will receive the $500 government co-contribution). Depending on how much he actually earns, that might be around half of the agreed 25%. Once he has put aside $1,000 for his annual super contribution we'll have another chat about where he might invest that portion of his wages.

As he will also receive the mandatory 10.5% employer contributions into his superannuation account (he already has about $9,000 is his superannuation account due to 'child super' contributions I had made over the years) he will end up adding around $2,500 to his super balance each year, which is quite significant considering it will then compound for around five decades before he retires ;)

Subscribe to Enough Wealth. Copyright 2006-2022


Anonymous said...

Great post! Can you give more details on how you set up your kids super accounts when they were soo younge? said...

Child super was a new thing a decade or more ago, but never seems to have really caught on very much with the general public (although there are quite a few children with super according to the ATO - see article
I setup child super with OneAnswer for my younger son (still under 18) and contributed some undedecuted (after tax) money into it. I got TFNs for both sons when they were young as I wanted to buy some shares for them (unfortunately you have to setup a trading account as trustee for anyone under 18, and the ATO assumes the dividends are attributed to the trusttees (eg. my wife and I) rather than the child. So I have to adjust the autofill entries on my tax return to exclude those dividend payments and report them in my son's tax return instead). Children can get up to about $418 of unearned income (eg. interest on bank accounts containing birthday gifrs, share dividends etc) but if they have any earned income (eg from a paper round) that should be saved in a separate account as income from invested 'earned income' are also deemed as 'earned income' and are subject to the normal adult tax free threshold (so the child tax rates aren't applied to earned income).
Anyhow, getting back to child super, one of the benefits was that my sons could make a personal undeducted (after tax) contribution to their super account of up to $1,000 and receive the government cocontribution of up to $500 (so an immediate 50% return). And the superannuation tax rates (15%) on superannuation earnings are a lot better than the child tax rate of 66%.
The main things to look out for when choosing a super fund to open a child super account with is a) they allow accounts to be opened for minors, and b) the fees are very low (as child super accounts will start off with a small balance and won't grow much via contributions until the child starts getting SGL contributions eg when they start a casual job at McDonalds). High fees can rapidly erode the value of low super balances (although there are some protections in the super legislation for 'low balance' accounts which I think apply for balances up to $1,000?
Once my eldest sone turned 18 he rolled his super over into our SMSF. (not being able to be a trustee under 18 means the SMSF would have to have a Corporate Trustee as well as the trust deed allowing members under 18 --so it generally is not worth the hassle to have children in an SMSF).
Of course money in superannuation is generally not accessible until preservation age, so a child super account may not be suitable. Also, the proposed higher superannuation tax rates on 'earnings' of super balances over $3MM might have an impact in the long term if a child has a superannuation account that builds up to a reasonable amount by age 18, and is then added to via SGL for 30-40 years of working life. On the plus side, compounding means that having a reasonable super balance by age 18 means that SGL contributions alone will likely result in a sizeable superannuation 'nest egg' by the time your child retires.
You would need to research fees and features of superannuation funds that allow accounts to be opened for minors. Some I found via a quick google (not a recommendation!) are:
there are probably other funds that will open accounts for a minor