I've never been a great fan of Robert Kiyosaki, aside from some of the advice presented in "Rich Dad, Poor Dad" seeming a bit dubious, I find it a bit "rich" for someone who, by their own admission, was a serial-failure at business and investing until his late 40s, to claim to be an expert on investing and finance. (Especially as I'm not sure how well his "borrow heavily and invest in real estate" strategy has played out since the GFC and US real estate crash). However, when I saw a mint-condition set of the board game "Cashflow 101" being thrown out I was interested enough to check out the contents (everything present and correct - only a couple of the playing sheets had been filled in. Obviously the original owners of this game didn't play it more than once or twice).
After all, aside from "Monopoly" there aren't too many payable games that are related to investing and personal finance. And ever since I found out that my old copy of the PC game "Jones in the fast lane" wouldn't run on any of our current crop of home computers, I've been keeping an eye out for a suitable family game that might teach the kids something about personal finance and investing - and still be enjoyable to play.
We played our first game of "Cashflow 101" today - DS2 had been pestering me to play if since I brought the game home last week and he saw the cute mouse on the cover and the mice and cheese playing tokens and piles of play money. The game rules are quite involved once you get going - and every time for buy or sell investments you have to adjust a whole lot of figures on the playing sheets. But the boys enjoyed playing, and liked getting money every couple of turns when they landed on a "pay day" square. Their groans every time they landed on a "doo-dads" square and had to spend "hard-earned" cash on a stereo or a new set of tyres makes me think the game might even be a little-bit educational (aside from the copious amounts of mental arithmetic practice updating their "accounts" sheet each turn.
Some of the game-play features are understandably less than realistic (it would be too hard to vary the frequency of getting laid off work based on the "career" of each player - but having a teacher, an engineer and a lawyer all loosing the jobs with the same regularity didn't seem very realistic). The stock market trades also seem very biased towards highly speculative "trading" rather than a diversified, dividend producing share market portfolio. But the main gripes I have with the game playing it only once are a) it takes way longer to play than indicated - we spent around 5 hours playing it before giving up when the first player made it into the "fast lane", and b) some of the rules seem unclear eg. when you buy a house that has a positive cashflow, do you simply add the positive amount to your total cashflow? or do you add the positive cashflow and also have to deduct the 10% interest charged on the mortgage?
However, overall the game was quite a lot of fun to play, and provided there is some intelligent discussion of the investments and financial decisions being made (eg. don't invest in 6% CDs when you still have an outstanding credit card debt costing 10% per month!) it can also be an "educational" play activity for the kids to participate in with their parents. I wouldn't rush out to buy the game for $80 or so from amazon.com, but for $0 it was a bargain.
For our next game I'll be sticking a set of the blank "financial statements" into clear sleeves so we can write the figures using white-board markers for easy updating.
ps. If you're tempted to pay good money for this game, I'd recommend looking into the e-version, as the manual updating of the financial statements is the most boring, error-prone and time-wasting "feature" of the game.
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Showing posts with label children's money. Show all posts
Showing posts with label children's money. Show all posts
Monday, 23 May 2011
Friday, 3 September 2010
Net Worth of My Children
No, this isn't a soppy "my kids are priceless" post, just an occasional updates on their financial net worth. As of 30 August, DS1 (10 yo) had a net worth of $55,504.50 spread between his retirement savings account (superannuation), share portfolio and Vanguard Index fund investment. DS2 (4 yo) had a net worth of $7,091.64 - with relatively more invested in bank accounts, a small retirement savings account, and a small stock portfolio.
The chart below shows the progress of their net worths over the past few years. I had hoped that the stock investments and superannuation account deposit I had made for DS2 would have grown enough by now to match the value DS1 had when he was four. Unfortunately the GFC has meant not much growth in the investments of DS1 and DS2 over the past three years, so DS1 is falling behind. The small overall growth in DS1's NW over the past three years has been almost entirely due to the money he has earned busking, at the government superannuation co-contribution matching amounts he has received into his retirement savings account when he has deposited some of his earned income into super each year. He was also helped by my switching his super out of the geared share fund at the start of the GFC, and moving back into shares close to the bottom in 2009.
The chart also shows that from age 4-7 DS1 saw a substantial rise in his NW. This was due to a combination of his stock portfolio doing very well in that period, but also because he (with a lot of help from me) had a paper round earning almost $100 a week for those years. As I don't feel like getting up before dawn anymore to "help" with a paper round, DS2 will have to find some other source of revenue. If he manages to learn a bit of recorder music I think I'll let him join DS1 when he goes busking from an hour on the weekend - they can split the earnings which should help DS2's age-equivalent NW catch up over time. Although DS2's presence may help DS1 collect a bit more when busking, sharing it will reduce DS1's busking income - his first experience of 'taxation' and 'redistribution of wealth' ;)
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The chart below shows the progress of their net worths over the past few years. I had hoped that the stock investments and superannuation account deposit I had made for DS2 would have grown enough by now to match the value DS1 had when he was four. Unfortunately the GFC has meant not much growth in the investments of DS1 and DS2 over the past three years, so DS1 is falling behind. The small overall growth in DS1's NW over the past three years has been almost entirely due to the money he has earned busking, at the government superannuation co-contribution matching amounts he has received into his retirement savings account when he has deposited some of his earned income into super each year. He was also helped by my switching his super out of the geared share fund at the start of the GFC, and moving back into shares close to the bottom in 2009.
The chart also shows that from age 4-7 DS1 saw a substantial rise in his NW. This was due to a combination of his stock portfolio doing very well in that period, but also because he (with a lot of help from me) had a paper round earning almost $100 a week for those years. As I don't feel like getting up before dawn anymore to "help" with a paper round, DS2 will have to find some other source of revenue. If he manages to learn a bit of recorder music I think I'll let him join DS1 when he goes busking from an hour on the weekend - they can split the earnings which should help DS2's age-equivalent NW catch up over time. Although DS2's presence may help DS1 collect a bit more when busking, sharing it will reduce DS1's busking income - his first experience of 'taxation' and 'redistribution of wealth' ;)
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Saturday, 26 September 2009
Coin counting machine at CommBank
When DS1 and I went into a local branch of the Commonwealth Bank last week we noticed a shiny new coin counting machine had been installed. You pour you collection of coins into a tray, press a button and Hey! Presto! the coins are swept into the guts of the machine and a docket is printed out showing how much your coins were worth (you have to assume the machine never makes mistakes!). If you're a CommBank customer and use the docket to deposit the funds into your CommBank account there's no charge. But if you're not a CommBank customer you'll be hit with a massive 10% "service fee". We also found out that you have to use the docket to deposit the money that day (I suppose there's some sort of checking done when the docket is processed to verify the amount matches what the machine has taken - the docket would probably be easy to forge).
As the branch is open on Saturday afternoon when DS1 does his busking, I'll put a note with his account details into his busking bag so he can have his earnings counted and deposited into his account as soon as he finished busking. Currently we have to lug his bag of coins home, manually sort and bag them, and later make a trip to the bank to have the bagged coins deposited.
It will be interesting to see how the coin counting machine reacts if there are some foreign coins mixed in with the Australian coins - DS1 often gets some NZ, Chinese or Malaysian coins thrown into his busking collection box.
We'll probably just use the CommBank coin counting machine for counting and depositing the 'silver' (<$1) coins, and still take the 'gold' ($1 and $2) coins to put in his money boxes. DS1 usually gives a dollar or two of his earnings to his younger brother, and deposits the bulk of his income into his St George account so it can be transferred easily into the higher interest "online" savings account.
As the branch is open on Saturday afternoon when DS1 does his busking, I'll put a note with his account details into his busking bag so he can have his earnings counted and deposited into his account as soon as he finished busking. Currently we have to lug his bag of coins home, manually sort and bag them, and later make a trip to the bank to have the bagged coins deposited.
It will be interesting to see how the coin counting machine reacts if there are some foreign coins mixed in with the Australian coins - DS1 often gets some NZ, Chinese or Malaysian coins thrown into his busking collection box.
We'll probably just use the CommBank coin counting machine for counting and depositing the 'silver' (<$1) coins, and still take the 'gold' ($1 and $2) coins to put in his money boxes. DS1 usually gives a dollar or two of his earnings to his younger brother, and deposits the bulk of his income into his St George account so it can be transferred easily into the higher interest "online" savings account.
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Friday, 25 September 2009
Children's Superannuation: Retirement Savings Account (RSA) Comparison - AMP vs CommBank
I opened two retirement savings accounts for DS1 several years ago, one when he was born, and the the second when he started earning money doing a paper round.
The first retirement account was a 'Child Super' account that allowed parents or grandparents to contribute up to $1,000 each year into a superannuation account for their child. These accounts were never very popular as there was no tax deduction for the amounts contributed, so the only real benefit of a 'Child Super' account is to avoid the incredibly high tax rates (around 60%) applied to children's unearned income (eg. interest on bank savings accounts where the money came from gifts or pocket money) once it exceeded a threshold (of around $2,000 pa after applying the low income tax rebate). Earning within a 'Child Super' account are taxed at the usual concessional superannuation tax rate of 15%. I opened the 'Child Super' account with Macquarie, and at least it offers a good choice of investment options (eg. Australian and Overseas share funds). Once DS1 reaches 18 years of age this account will transition to a normal "personal" superannuation account (I may add him as a member of our SMSF when he turns 18. Under 18 it's harder for children to be members of SMSFs as they can't be a Trustee).
Once DS1 started having 'earned income' (from his paper round - deposited into a separate savings account to keep it separate from his pocket money and any money gifts) I opened a second "personal" superannuation account for him, so he could benefit from the 1.5:1 government co-contribution on personal, undeducted superannuation contributions (ie. when he deposited $1000 into super each year he received a $1,500 "co-contribution" from the ATO). Finding a suitable superannuation account was a bit difficult - Child Super' accounts aren't eligible for the co-contribution (as they don't accept contributions from the child themselves), and most "personal" superannuation accounts required the applicant to be over 18 years of age. At the time, the only account I could find for DS1 that didn't require applicants to be over 18 years old was the AMP Retirement Savings Account (RSA) (at the time they didn't require DOB information on the application form, although they later did apply an incorrect "default" DOB and I had to send in a copy of his birth certificate to get the data fixed). This worked well, with DS1 received the co-contribution "match" for FY04/05 and FY05/06 (that year the budget even gave a second "bonus" co-contribution of $1,500). DS1 didn't receive the co-contribution for FY 06/07 (once he had stopped his paper round), as the Superannuation co-contribution rules at that time required having income from an employer to be eligible (ie. the rules excluded the self-employed). The rules were change the following year so that any income earner (including self-employed) under the age of 75 who makes an undeducted superannuation contribution is now entitled to receive the co-contribution (although it's been reduced to $1,000 this financial year). DS1 received the $1500 co-contribution in DEc 08 for the FY07/08 tax return he lodged in July 08, and I expect he'll receive the $1,000 co-contribution for FY08/09 later this year...
However, since I opened his AMP RSA account interest rates have dropped considerably, and the rates on offer from the AMP are now very low:
The 0% rate is obviously set to allow for the Superannuation rules that prohibit charging any fees on Superannuation account balances below $1,000, and all the rates are net of MER (estimated at 1.9%).
I recently received a PDS (Product Disclosure Statement) for a new RSA on offer from Commonwealth Bank. It looks pretty good for anyone looking to setup a superannuation for a child or teen wanting to save something towards their retirement (and possibly get help from the government co-contribution, although the next Labor government budget may change that). There is a flat annual admin fee of $25, but only when the account balance is over $1,000. And the interest rates on offer are much better than the AMP rates, especially for balances under $2,500:
On DS1's current RSA balance of around $12,000 he would earn an extra $83pa in interest with the Commbank RSA.
The Commbank RSA also offers a second investment option within the RSA account - fixed rate term deposits for amounts over $5,000:
Although variable interest rates are likely to start rising in 2010, and may go up considerably if inflation takes hold post-GFC, the term deposit rates look attractive for a government-guaranteed investment sitting in a low-tax (15%) environment.
As the minimum amount to open a CommBank RSA is just $1, I'm going to open an account for DS1 in preparation for rolling over his AMP RSA account as soon as this year's co-contribution has been processed.
This graph highlights the difference in net interest rate on offer from AMP and CommBank:
The first retirement account was a 'Child Super' account that allowed parents or grandparents to contribute up to $1,000 each year into a superannuation account for their child. These accounts were never very popular as there was no tax deduction for the amounts contributed, so the only real benefit of a 'Child Super' account is to avoid the incredibly high tax rates (around 60%) applied to children's unearned income (eg. interest on bank savings accounts where the money came from gifts or pocket money) once it exceeded a threshold (of around $2,000 pa after applying the low income tax rebate). Earning within a 'Child Super' account are taxed at the usual concessional superannuation tax rate of 15%. I opened the 'Child Super' account with Macquarie, and at least it offers a good choice of investment options (eg. Australian and Overseas share funds). Once DS1 reaches 18 years of age this account will transition to a normal "personal" superannuation account (I may add him as a member of our SMSF when he turns 18. Under 18 it's harder for children to be members of SMSFs as they can't be a Trustee).
Once DS1 started having 'earned income' (from his paper round - deposited into a separate savings account to keep it separate from his pocket money and any money gifts) I opened a second "personal" superannuation account for him, so he could benefit from the 1.5:1 government co-contribution on personal, undeducted superannuation contributions (ie. when he deposited $1000 into super each year he received a $1,500 "co-contribution" from the ATO). Finding a suitable superannuation account was a bit difficult - Child Super' accounts aren't eligible for the co-contribution (as they don't accept contributions from the child themselves), and most "personal" superannuation accounts required the applicant to be over 18 years of age. At the time, the only account I could find for DS1 that didn't require applicants to be over 18 years old was the AMP Retirement Savings Account (RSA) (at the time they didn't require DOB information on the application form, although they later did apply an incorrect "default" DOB and I had to send in a copy of his birth certificate to get the data fixed). This worked well, with DS1 received the co-contribution "match" for FY04/05 and FY05/06 (that year the budget even gave a second "bonus" co-contribution of $1,500). DS1 didn't receive the co-contribution for FY 06/07 (once he had stopped his paper round), as the Superannuation co-contribution rules at that time required having income from an employer to be eligible (ie. the rules excluded the self-employed). The rules were change the following year so that any income earner (including self-employed) under the age of 75 who makes an undeducted superannuation contribution is now entitled to receive the co-contribution (although it's been reduced to $1,000 this financial year). DS1 received the $1500 co-contribution in DEc 08 for the FY07/08 tax return he lodged in July 08, and I expect he'll receive the $1,000 co-contribution for FY08/09 later this year...
However, since I opened his AMP RSA account interest rates have dropped considerably, and the rates on offer from the AMP are now very low:
AMP RSA:
Balance________________ Int Rate
<$1,000________________ 0.00%
$1,000 - $2,500________ 0.15%
$2,500 - $10,000_______ 1.15%
$10,000 - $50,000______ 1.40%
>$50,000_______________ 1.60%
The 0% rate is obviously set to allow for the Superannuation rules that prohibit charging any fees on Superannuation account balances below $1,000, and all the rates are net of MER (estimated at 1.9%).
I recently received a PDS (Product Disclosure Statement) for a new RSA on offer from Commonwealth Bank. It looks pretty good for anyone looking to setup a superannuation for a child or teen wanting to save something towards their retirement (and possibly get help from the government co-contribution, although the next Labor government budget may change that). There is a flat annual admin fee of $25, but only when the account balance is over $1,000. And the interest rates on offer are much better than the AMP rates, especially for balances under $2,500:
Commbank RSA:
Balance________________ Int Rate
<$1,000________________ 1.90%
$1,000 - $5,000________ 2.00%
$5,000 - $10,000_______ 2.15%
$10,000 - $50,000______ 2.30%
>$50,000_______________ 2.60%
On DS1's current RSA balance of around $12,000 he would earn an extra $83pa in interest with the Commbank RSA.
The Commbank RSA also offers a second investment option within the RSA account - fixed rate term deposits for amounts over $5,000:
Commbank RSA term deposits (min $5,000):
Term___________________ Int Rate
1 year_________________ 2.40%
2 years________________ 3.40%
3 years________________ 4.50%
4 years________________ 4.95%
5 years________________ 5.20%
Although variable interest rates are likely to start rising in 2010, and may go up considerably if inflation takes hold post-GFC, the term deposit rates look attractive for a government-guaranteed investment sitting in a low-tax (15%) environment.
As the minimum amount to open a CommBank RSA is just $1, I'm going to open an account for DS1 in preparation for rolling over his AMP RSA account as soon as this year's co-contribution has been processed.
This graph highlights the difference in net interest rate on offer from AMP and CommBank:
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Thursday, 9 July 2009
Free money for the kids
The latest issue of Money magazine has a special offer - a coupon for a $50 "Money for Jam" bonus deposit when a new NAB Smart Junior Saver Account is opened before the end of August. DW dropped in to a NAB branch and opened accounts for DS1 and DS2. She deposited $20 into each account, and the next day the $50 bonus had been credited.
These accounts have no fees and normally earn 1% pa interest. The interest rate goes up by another 1.35% pa for months where there's a deposit and no withdrawal. The kid's also got a free soccer ball money box each ;)
PS. An original coupon is required, but photocopies are accepted for additional accounts opened in the same family.
These accounts have no fees and normally earn 1% pa interest. The interest rate goes up by another 1.35% pa for months where there's a deposit and no withdrawal. The kid's also got a free soccer ball money box each ;)
PS. An original coupon is required, but photocopies are accepted for additional accounts opened in the same family.
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Sunday, 14 June 2009
ANZ SPP - a windfall?
DS1 and I both received the paperwork for the ANZ Bank's Share Purchase Plan. The maximum application amount is $15,000 and the share price is a maximum of $14.40 per share (it's unlikely to be less than this as the current share price is 20% above that level). I have around $20,000 worth of ANZ in my leveraged equities portfolio and will use the cash realised by the wind-up of the Commonwealth Diversified Fund (CDF) to apply for the maximum amount. If there isn't any scale-back, and the share price remains close to it's current level, that will produce an immediate windfall profit of $3,000.
DS1 is likely to do even better from this SPP. He currently has $4,750 worth of ANZ shares, and has $1,000 spare cash sitting in his St George Happy Dragon account (earned from busking) that he wants to use to buy some more ANZ shares via the SPP. I think I'll lend him another $14,000 as a short-term loan so he can also apply for the maximum allotment. If he's lucky and gets the full $15,000 worth of ANZ SPP shares issued at $14.40 he can sell enough surplus shares to repay my $14,000 loan a few weeks later. Depending on how the price moves between now and when the SPP shares are sold, he may end up with an extra $3,000 of 'free' ANZ shares in his portfolio.
I'll borrow the $14,000 to lend DS1 from my St George Portfolio loan account (5.10% current interest rate).
DS1 is likely to do even better from this SPP. He currently has $4,750 worth of ANZ shares, and has $1,000 spare cash sitting in his St George Happy Dragon account (earned from busking) that he wants to use to buy some more ANZ shares via the SPP. I think I'll lend him another $14,000 as a short-term loan so he can also apply for the maximum allotment. If he's lucky and gets the full $15,000 worth of ANZ SPP shares issued at $14.40 he can sell enough surplus shares to repay my $14,000 loan a few weeks later. Depending on how the price moves between now and when the SPP shares are sold, he may end up with an extra $3,000 of 'free' ANZ shares in his portfolio.
I'll borrow the $14,000 to lend DS1 from my St George Portfolio loan account (5.10% current interest rate).
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Thursday, 4 December 2008
Shifted my son's cash savings into long-term asset allocation
DS1 had $10,000 he'd earned from two years of doing a paper round sitting in a St George online savings account. It was earning a good rate of interest, and was nice and safe (especially since the Australian government guaranteed bank deposits), but cash isn't a sensible asset allocation for an 8-year old with a very long investment time frame. So, with interest rates rapidly dropping as the RBA cut the official rate by 3% in the past 3 months, and the stock markets appearing reasonable value at current prices, I decided to open a Vanguard investment account for DS1 so he could invest his $10,000 in a suitable index fund. The one we (I) decided on is the Life Strategy High Growth fund, which invests in a mix of the other Vanguard Index funds to achieve an asset allocation of:
The fund has a fairly high fee (0.9%) for an index fund, especially compared to the US Vanguard funds, but there are fee rebates for larger investments, so you pay 0.6% fee on amounts between $50,000 and $100,000, and a reasonable 0.35% for amounts over $100,000. If DS1 continues to use this fund for investing as he gets older it should be a reasonable investment vehicle for his non-retirement savings.
Asset Sector ..................... Fund ... Target
...................................Actual . Allocation
Growth Assets
Australian Shares ................43.5% ....44.0%
International Shares .............28.9% ....29.0%
Australian Property Securities ... 5.2% .... 5.0%
Int. Property Securities (Hedged). 5.6% .... 5.0%
Int. Small Companies (Hedged) .... 3.8% .... 4.0%
Emerging Markets Shares .......... 2.9% .... 3.0%
Total Growth .....................89.9% ....90.0%
Income Assets
Australian Fixed Interest ........ 4.1% .... 4.0%
Int. Fixed Interest (Hedged) ..... 6.0% .... 6.0%
Australian Cash .................. 0.0% .... 0.0%
Total Income .....................10.1% ....10.0%
The fund has a fairly high fee (0.9%) for an index fund, especially compared to the US Vanguard funds, but there are fee rebates for larger investments, so you pay 0.6% fee on amounts between $50,000 and $100,000, and a reasonable 0.35% for amounts over $100,000. If DS1 continues to use this fund for investing as he gets older it should be a reasonable investment vehicle for his non-retirement savings.
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Wednesday, 29 October 2008
Added some cash to my son's retirement account
DS2 has a "child superannuation account" I opened for him when he was two year old. It was initially invested 100% in the geared share option (which did very well for the first four years), but I switched it into 60% ungeared shares, 20% real estate and 20% bonds at the start of 2007 (I wish I'd done the same asset reallocation for MY investment portfolio!). So although the account has lost a bit of value in the past 12 months, it's performance over five years is still pretty good. I think it's too early to switch this account back into 100% geared stock investments (although I think that's probably a reasonable asset allocation for an 8 year old that can't withdraw the funds until retirement age in 50 years or so), but I decided to make a $1,000 contribution into his account yesterday while the stock market is "on sale".
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Saturday, 19 July 2008
Makes you wonder about all the mistakes they don't fix up
DS2 has a retirement (superannuation) account with ING that I opened on his behalf in November 2006. There haven't been any transactions on the account since the initial $1,200 deposit, and the value of the account had only increased slightly to $1,289.48 by 30 June 2008. It was therefore a bit of a surprise to get a letter from ING yesterday stating that a recent "review [of] our processes, controls and systems" had "identified an additional value" of $26.80 that will now be credited to the account as an adjustment. While I'm glad that they've apparently found a mistake and are rectifying it, it's a bit of a shock that the required "adjustment" is over 2% of the account balance! It makes you wonder how many mistakes by professional investment managers go undetected.
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Saturday, 14 June 2008
Spend, spend, spend
Today I ended up spending a bit more than I planned. This afternoon we drove down to the music shop where we'd bought DS1's clarinet (second hand) a couple of years ago. He started learning the clarinet this year, and playing in the school's training band. He's pretty good at music (playing piano, recorder and now clarinet), but not so good as to make it into a career. He enjoys playing in the band, but, being only eight, the instrument takes a bit of a pounding - especially last week when he left it standing on the floor and DS2 toddled past and knocked it over. Fortunately I bought a second clarinet at Aldi last year, so I could play along with him and teach him to play (I learned bassoon in high school, so I can teach basic keyboard and woodwind instruments - very handy given the cost of professional music lessons!). So for the next two week's he'll be using my clarinet while his is in the shop being repaired. DS1 earn a bit of extra pocket money busking on the weekend after his piano lesson - so I've told him I'll take out 50% as a "tax" to pay for the repairs. Hopefully this will make him take a bit more care with his equipment.
We then visited Aldi to buy some nappies, and while we were there ended up buying some unplanned "extras". They had a convection oven for sale at $49, which seemed a good price. We already had an old convection oven we've used for everyday cooking for the past ten years (we haven't ever used the stove oven!), so I thought it was worth buying a new one before the old one died (the fan has been getting a but more noisy lately). They also had a self-inking stamp kit for $8, which I bought for DS1 to play with. It's definitely not something we need, but he's having fun type-setting his name and address and can use it to label all his school books, and the occasional letter to his relatives.
While we were at the shopping centre I dropped in to the Electronic Boutique shop to browse for computer games. Although I don't really have much spare time to play games, I enjoy the occasional RPG and would like to see what the modern MUD games are like to play. Now that my uni assignments for this term are out of the way, I may be able to squeeze in a couple of hours of game play. I bought "Vanguard:Saga of Heroes" which appears to be Vista compatible (a lot of my old PC games don't work under Vista), and only cost $20. The game only works online however, so I'll have to pay a monthly fee if I want to keep playing after the introductory 30 day game subscription expires.
All up, an extra $77 of discretionary spending. At least I didn't buy the $139 hedge trimmer while I was at Aldi!
We then visited Aldi to buy some nappies, and while we were there ended up buying some unplanned "extras". They had a convection oven for sale at $49, which seemed a good price. We already had an old convection oven we've used for everyday cooking for the past ten years (we haven't ever used the stove oven!), so I thought it was worth buying a new one before the old one died (the fan has been getting a but more noisy lately). They also had a self-inking stamp kit for $8, which I bought for DS1 to play with. It's definitely not something we need, but he's having fun type-setting his name and address and can use it to label all his school books, and the occasional letter to his relatives.
While we were at the shopping centre I dropped in to the Electronic Boutique shop to browse for computer games. Although I don't really have much spare time to play games, I enjoy the occasional RPG and would like to see what the modern MUD games are like to play. Now that my uni assignments for this term are out of the way, I may be able to squeeze in a couple of hours of game play. I bought "Vanguard:Saga of Heroes" which appears to be Vista compatible (a lot of my old PC games don't work under Vista), and only cost $20. The game only works online however, so I'll have to pay a monthly fee if I want to keep playing after the introductory 30 day game subscription expires.
All up, an extra $77 of discretionary spending. At least I didn't buy the $139 hedge trimmer while I was at Aldi!
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Tuesday, 4 March 2008
Boys Own Financial Plan
The boys (DS1 and DS2) net worth decreased slightly this month, taking hits on their small, undiversified stock portfolios. DS1 suffered the worst performance, with his investments in ANZ and QBE both doing badly. DS2 did slightly better, with CSL and CPU in his portfolio.
The long term financial plan for the boys aims for each of them to have a net worth somewhere north of $100K when they turn 18 - providing a sound base for them to save for a house and fund their retirement accounts without too much stress.
There actual and projected net worths are plotted against age below:
The projection is based on the following assumptions:
Savings accounts.....1.2% real return
RSA account..........4.7% real return
stock portfolio......8.8% real return
superannuation.......8.8% real return
(invested in stock/geared stock funds)
savings:
The recent dip in DS1's graph shows how unlikely it is that the actual outcomes will be anything like the smooth projection.
Copyright Enough Wealth 2007
The long term financial plan for the boys aims for each of them to have a net worth somewhere north of $100K when they turn 18 - providing a sound base for them to save for a house and fund their retirement accounts without too much stress.
There actual and projected net worths are plotted against age below:
The projection is based on the following assumptions:
Savings accounts.....1.2% real return
RSA account..........4.7% real return
stock portfolio......8.8% real return
superannuation.......8.8% real return
(invested in stock/geared stock funds)
savings:
- $1,200 pa contribution each (by me) into their superannuation accounts
- $1,500 pa government co-contribution each into their superannuation accounts
- $50 per month saved from their odd jobs/busking/pocket money etc.
The recent dip in DS1's graph shows how unlikely it is that the actual outcomes will be anything like the smooth projection.
Copyright Enough Wealth 2007
Thursday, 31 January 2008
Seven year old saves for his retirement
From his pocket money and money earned busking before Christmas, DS1 had saved up over $350 in his "Happy Dragon" bank account. Today I transferred in some additional money from his high interest online savings account (which holds the money he earned while doing a paper round) so that there was enough to make an online contribution of $600 into the retirement savings account (RSA) he has with AMP.
I'll transfer another $400 before the end of June so that he'll have made a total "after-tax" contribution of $1000 into his superannuation account this financial year. I'm not sure if he'll get the $1500 government co-contribution this tax year, but it's worth making the contribution just in case. Before last year's changes to the tax laws, only employees were entitled to the co-contribution, so he was only eligible while he was earning money from his paper round. However, under the new rules self-employed people are also eligible for the co-contribution, so he should be able to contribute some of the money he earns from busking and get the 150% co-contribution (up to $1500) from the government.
The RSA account only offers a fixed interest option, but the rates are quite good (similar to an online savings account) and there are very low fees. The main benefit of this account is that DS1 was able to open it on his own behalf, which enables him to make contributions that are eligible for the co-contribution. His other retirement account is a so-called "child super" account which I had to open on his behalf, and which is intended for contributions made for him by parents and grandparents. There is an annual limit on how much can be contributed into a child super account, but it has a full range of investment options available, so it's a good choice for his long term retirement savings. Once he reaches 18 it will convert to a standard superannuation account.
Copyright Enough Wealth 2007
I'll transfer another $400 before the end of June so that he'll have made a total "after-tax" contribution of $1000 into his superannuation account this financial year. I'm not sure if he'll get the $1500 government co-contribution this tax year, but it's worth making the contribution just in case. Before last year's changes to the tax laws, only employees were entitled to the co-contribution, so he was only eligible while he was earning money from his paper round. However, under the new rules self-employed people are also eligible for the co-contribution, so he should be able to contribute some of the money he earns from busking and get the 150% co-contribution (up to $1500) from the government.
The RSA account only offers a fixed interest option, but the rates are quite good (similar to an online savings account) and there are very low fees. The main benefit of this account is that DS1 was able to open it on his own behalf, which enables him to make contributions that are eligible for the co-contribution. His other retirement account is a so-called "child super" account which I had to open on his behalf, and which is intended for contributions made for him by parents and grandparents. There is an annual limit on how much can be contributed into a child super account, but it has a full range of investment options available, so it's a good choice for his long term retirement savings. Once he reaches 18 it will convert to a standard superannuation account.
Copyright Enough Wealth 2007
Sunday, 13 January 2008
The financial benefits of accelerated learning
DS1 started reading at a relatively early age, and so he started Kindergarten as early as possible rather than waiting another year before starting school. The reasoning was that although he was quite small for his age (and therefore the smallest boy in his class) he would have been bored staying in long day-care five days a week for another year (DW had returned to work full-time by then - at that time it was our company policy to return to full-time work within a couple of years of returning from maternity leave). He hasn't had trouble coping with school, and one benefit of being one of the youngest in his class is that it's practically the same having started a year later but then skipping a grade, but less disruptive.
There appears to be a certain amount of resistance among many parents and teachers against advancing a child, even though studies have shown it can be a good option for gifted students who can otherwise become bored with school.
Aside from the educational benefits of providing an appropriately challenging learning environment for such students, skipping a grade can also have long-term financial benefits for both the parents and child. Since educational costs are tending to increase at a faster rate than inflation, skipping a grade will not only mean that parents pay less in total for K-12 schooling (saving roughly 1/13th), but the costs for the more expensive high school years will be at the previous year's cost level compared to the situation if a grade hadn't been skipped.
The parents and child will both benefit from college costs being paid out one year earlier, hence at lower real price levels. Although this will also mean one less year to save up for college expenses from the time the child was born until commencing college.
Assuming the same rate of progress through college and into full-time employment, the child will benefit from starting to earn a full-time wage one year earlier, so will always benefit from having one extra year of salary rises via experience relative to their age. And whatever age they eventually retire at, they will have had one extra year of earning compared to the situation if they had commenced work a year later. Once you've started work and have a few years of experience, there are very few jobs where being one year younger would actually be a disadvantage!
I don't think that financial considerations should be a factor in deciding whether or not to accelerate a child through school, but it could help decide whether to start a child in Kindergarten as soon as they are ready, or 'keep them back' for another year before sending them off to school. It seems that more and more parents are choosing to start their kids at school as late as possible (here in NSW there is an 18 month age-range allowed for when a child starts school, so most parents can choose to delay the start of schooling for one year if they want), often for no better reason than the mother (or father) wants to child to stay home with them for another year.
It's too soon to tell if DS2 will even be ready and suited to starting school "early", and in his case it will be a more difficult choice as his birth date falls slightly less than one month short of the cut-off date. That will mean that he'll either be one of the older kids in his class if he starts Kindergarten at the standard age bracket, or else we'd have to ask the local school's headmaster to consider letting him commence school when he's one month younger than the standard age-limit.
While it's always possible to provide additional educational and developmental challenges to children without having them skip a grade, it's often more of a challenge to provide such extra-curricula opportunities in parallel to their standard school activities. Plus it can be hard to avoid the potential for boredom in their normal classes (despite all schools having policy around providing for gifted students, there still seems to be more effort and resources devoted to helping struggling students achieve normal proficiency levels than there are to helping the more able students achieve their maximum potential). Overall, I think it's less disruptive to a child to start school a year early (if it suits them) and then progress with the same cohort of students, compared to having them skip ahead a year at a later stage.
What do you think?
Copyright Enough Wealth 2007
There appears to be a certain amount of resistance among many parents and teachers against advancing a child, even though studies have shown it can be a good option for gifted students who can otherwise become bored with school.
Aside from the educational benefits of providing an appropriately challenging learning environment for such students, skipping a grade can also have long-term financial benefits for both the parents and child. Since educational costs are tending to increase at a faster rate than inflation, skipping a grade will not only mean that parents pay less in total for K-12 schooling (saving roughly 1/13th), but the costs for the more expensive high school years will be at the previous year's cost level compared to the situation if a grade hadn't been skipped.
The parents and child will both benefit from college costs being paid out one year earlier, hence at lower real price levels. Although this will also mean one less year to save up for college expenses from the time the child was born until commencing college.
Assuming the same rate of progress through college and into full-time employment, the child will benefit from starting to earn a full-time wage one year earlier, so will always benefit from having one extra year of salary rises via experience relative to their age. And whatever age they eventually retire at, they will have had one extra year of earning compared to the situation if they had commenced work a year later. Once you've started work and have a few years of experience, there are very few jobs where being one year younger would actually be a disadvantage!
I don't think that financial considerations should be a factor in deciding whether or not to accelerate a child through school, but it could help decide whether to start a child in Kindergarten as soon as they are ready, or 'keep them back' for another year before sending them off to school. It seems that more and more parents are choosing to start their kids at school as late as possible (here in NSW there is an 18 month age-range allowed for when a child starts school, so most parents can choose to delay the start of schooling for one year if they want), often for no better reason than the mother (or father) wants to child to stay home with them for another year.
It's too soon to tell if DS2 will even be ready and suited to starting school "early", and in his case it will be a more difficult choice as his birth date falls slightly less than one month short of the cut-off date. That will mean that he'll either be one of the older kids in his class if he starts Kindergarten at the standard age bracket, or else we'd have to ask the local school's headmaster to consider letting him commence school when he's one month younger than the standard age-limit.
While it's always possible to provide additional educational and developmental challenges to children without having them skip a grade, it's often more of a challenge to provide such extra-curricula opportunities in parallel to their standard school activities. Plus it can be hard to avoid the potential for boredom in their normal classes (despite all schools having policy around providing for gifted students, there still seems to be more effort and resources devoted to helping struggling students achieve normal proficiency levels than there are to helping the more able students achieve their maximum potential). Overall, I think it's less disruptive to a child to start school a year early (if it suits them) and then progress with the same cohort of students, compared to having them skip ahead a year at a later stage.
What do you think?
Copyright Enough Wealth 2007
Tuesday, 25 December 2007
Kids Stock Portfolio Update - Dec 2007
The boys are only seven (DS1) and one (DS2), so their portfolios are truly "long term". They are also very static - once I buy a stock for them it probably won't be sold unless there is a massive and unexpected change in the company's prospects for the long term. There also won't be any additions to the portfolios after the initial stock purchases, apart from small additions due to dividend reinvestment plans (DRPs) or bonus share plans (BSPs). The main difference between these two plans is that DRPs buy additional shares at current market price (sometimes sans a small discount eg. 5%) using the taxable dividend income, whereas BSPs issue "bonus" shares at no cost in lieu of any dividend. The value of the issues bonus shares is the same as the dividend would have been, but isn't taxable as income. However, as the bonus share had a zero cost base for CGT purposes, there will be a bigger capital gains tax hit when the bonus shares are eventually sold. However, over the very long term the cost base will most likely be a small fraction of the total sale price, so this will not have much effect on the amount of CGT paid. Another way to look at it is that the while the starting value of the shares will be eventually be taxable for bonus share issues, the tax isn't due until the shares are sold - by which time the real cost of the tax will be much reduced due to inflation. There's also the benefit of only paying CGT at half your normal marginal tax rate for long term capital gains (assets held more than 12 months before being sold).
Anyhow, here is the current valuation of the boys' stock holdings:
When I bought QBE for DS1 they were undervalued due to the temporary concerns around their exposure to claims arising from the twin towers destruction on 9/11. ANZ bank was also reasonably cheap at that time, with the outlook for bank stocks being rosy. Five year's later, when it was time to buy some stocks for DS2, the banks were still highly profitable in Australia, but, with the current credit concerns resulting from the US sub-prime loans problem and rising inflation and interest rates in Australia, they don't currently appear to be such a bargain. So, for DS2 I've gone with CSL which is likely to benefit from continued growth in the medical products field in the future, and CPU which as a provider of stock administration services globally is well placed to benefit from economic growth in developing countries and the increased investments of the baby boomers and subsequent generations to provide for their own retirement plans. That's the theory -- we'll see how they perform over the next 10-20 years.
Copyright Enough Wealth 2007
Anyhow, here is the current valuation of the boys' stock holdings:
When I bought QBE for DS1 they were undervalued due to the temporary concerns around their exposure to claims arising from the twin towers destruction on 9/11. ANZ bank was also reasonably cheap at that time, with the outlook for bank stocks being rosy. Five year's later, when it was time to buy some stocks for DS2, the banks were still highly profitable in Australia, but, with the current credit concerns resulting from the US sub-prime loans problem and rising inflation and interest rates in Australia, they don't currently appear to be such a bargain. So, for DS2 I've gone with CSL which is likely to benefit from continued growth in the medical products field in the future, and CPU which as a provider of stock administration services globally is well placed to benefit from economic growth in developing countries and the increased investments of the baby boomers and subsequent generations to provide for their own retirement plans. That's the theory -- we'll see how they perform over the next 10-20 years.
Copyright Enough Wealth 2007
Thursday, 20 December 2007
The Millionaire Baby Next Door
Consider baby "John Doe". John's father starts doing some overtime (or a second job) as soon as he finds out John is on the way. When John is born he manages to scrape together $12,000 to invest in a low-cost investment fund. If the fund's total return averages 11% pa, the child's investment returns are taxed at 25%, and inflation averages 2% pa, the real, after-tax, return of the investment would be 7% -- and the investment account will hold just over $1 million (in today's dollars) when baby John turns 65.
Of course very few expectant parents would have a "spare" $12,000 lying around when a baby arrives, few dads would go out and earn an extra $12,000 during the pregnancy, and, if they had the choice, most people would probably put the $12,000 towards baby expenses rather than invest it for 65 years -- but it does show what can be achieved with a fairly modest amount invested for a long period.
If a lump sum of $12,000 is beyond reach (after all, that would require putting aside $33 a day for a year), the same result can be achieved by investing $1,000 each year for ten years (ie. finding an extra $3 a day to invest for the child), provided the investment return is somewhat higher (13% instead of 11%) or if the money was invested in a tax-sheltered account (such as a child superannuation account).
If one did both - investing an initial lump sum of $12,000 and then adding a further $1,000 each year until John Doe turned ten, John's investment would reach $1 million (in today's money) by age 58.
Copyright Enough Wealth 2007
Of course very few expectant parents would have a "spare" $12,000 lying around when a baby arrives, few dads would go out and earn an extra $12,000 during the pregnancy, and, if they had the choice, most people would probably put the $12,000 towards baby expenses rather than invest it for 65 years -- but it does show what can be achieved with a fairly modest amount invested for a long period.
If a lump sum of $12,000 is beyond reach (after all, that would require putting aside $33 a day for a year), the same result can be achieved by investing $1,000 each year for ten years (ie. finding an extra $3 a day to invest for the child), provided the investment return is somewhat higher (13% instead of 11%) or if the money was invested in a tax-sheltered account (such as a child superannuation account).
If one did both - investing an initial lump sum of $12,000 and then adding a further $1,000 each year until John Doe turned ten, John's investment would reach $1 million (in today's money) by age 58.
Copyright Enough Wealth 2007
Monday, 3 December 2007
Christmas Ching-a-Ling
As Christmas rapidly approaches the shoppers come out in force and are in the mood to spend. DS1 spends half an hour or so busking with his recorder at the nearby Shopping Plaza every Sunday after his piano lesson. Most weeks he makes $15 or $20 in half an hour, which he's keen to save in his bank account (He's only seven, so he doesn't have any expenses yet). Well, in the past couple of weeks his busking has earned around $40 in half and hour, and, today, he made $73 in 45 minutes (we stayed a bit longer than usual since the weather was very pleasant and DS1 was in the mood to play the Christmas Carols he had learned last month). It would be nice to have another couple of sessions like this before Christmas, but the weather in Sydney can get very hot this time of year, in which case busking isn't much fun - we'll go straight home for a swim in the pool after piano instead ;)
My mum was impressed by how much DS1 had made today, but my dad simply said "What sort of lesson does that teach him?". I guess he feels that if DS1 earns money too easily he may get an "easy come, easy go" attitude towards money. Personally, I think it's good for him to see that good money can be earned IF you're in the right job, at the right time and right place. Anyhow, he saves all the money he earns, and is quite interested in the process of banking the cash, and even takes some interest in my explanations of his superannuation fund, stock investments and tax returns.
Copyright Enough Wealth 2007
My mum was impressed by how much DS1 had made today, but my dad simply said "What sort of lesson does that teach him?". I guess he feels that if DS1 earns money too easily he may get an "easy come, easy go" attitude towards money. Personally, I think it's good for him to see that good money can be earned IF you're in the right job, at the right time and right place. Anyhow, he saves all the money he earns, and is quite interested in the process of banking the cash, and even takes some interest in my explanations of his superannuation fund, stock investments and tax returns.
Copyright Enough Wealth 2007
Friday, 23 November 2007
Children's Stock Investments
Since the market was down again today I decided to go ahead and buy some stocks for DS2. I bought 80 CSL at $32.08 and 250 CPU at $9.95. Total cost was $5,113.80 ($5,053.90 + $59.90 brokerage). While the investment is long term, it was nice to see the market recover a bit after I placed the order, so that by the close DS2's "portfolio" was worth $5,125.80, a rise of 1.4% above the purchase price.
DS1's portfolio consists of 246 ANZ shares and 438 QBE shares. The initial purchase cost $4,134.01 and is now worth $20,292.06.
Hopefully these four stocks continue to perform well over the next 10-20 years and will form the core of a stock portfolio they can add to as they grow up. If nothing else buying stocks for the kids provides a good opportunity to explain the concepts of share ownership, dividends, and compound interest. Because the accounts list their names (as trustors) they take an interest dividend statements and so on arrive in the mail.
Copyright Enough Wealth 2007
DS1's portfolio consists of 246 ANZ shares and 438 QBE shares. The initial purchase cost $4,134.01 and is now worth $20,292.06.
Hopefully these four stocks continue to perform well over the next 10-20 years and will form the core of a stock portfolio they can add to as they grow up. If nothing else buying stocks for the kids provides a good opportunity to explain the concepts of share ownership, dividends, and compound interest. Because the accounts list their names (as trustors) they take an interest dividend statements and so on arrive in the mail.
Copyright Enough Wealth 2007
Wednesday, 21 November 2007
Picking Stock for the Kids
I bought a couple of stocks for DS1 when he was one year old (six years ago), the idea being that they would be a good nest egg by the time he leaves home. At the time the banks looked set for continued growth (a lot less certain now) so I bought ANZ bank. There was also an opportunity to buy QBE when it was marked down due to concerns about insurance liabilities after 9/11. The other reason to pick these stocks was that they had bonus share plans, which means that dividends are foregone in exchange for bonus shares. This avoids income tax issues for the child, although there will be a higher rate of capital gains tax liability as the bonus shares have a zero cost base. Since then both stocks have done quite well, although ANZ has actually underperformed the broader market slightly.
DS2 has recently turned one, so the current market downturn is a good opportunity to buy a couple of stocks for him. I'm thinking of buying either Cochlear (COH), Commonwealth Serum Laboratories (CSL), or Computershare (CPU).
Copyright Enough Wealth 2007
DS2 has recently turned one, so the current market downturn is a good opportunity to buy a couple of stocks for him. I'm thinking of buying either Cochlear (COH), Commonwealth Serum Laboratories (CSL), or Computershare (CPU).
Copyright Enough Wealth 2007
Monday, 12 November 2007
Another Election Carrot
After several months of 'phoney election campaign', and three weeks of official campaigning, the Liberal Party had it's offiial campaign launch today and announced around $9 billion dollars worth of election promises. After Labour had announced a promise of a $750 tax rebate for the purchase of computers or other high tech equipment by parents for their high school kids, the Liberals today outdid this with a promise for a tax rebate of $800 for every secondary school student which could be used for any educational cost, such as uniforms or school fees, not just computers. Personally this is a better deal for me as the $400 rebate applies for preschool as well as primary school students, so we would be able to get this rebate for DS2's preschool year, not just $375 from when he starts primary school. The Liberal version of the educational tax rebate is promised not to be means tested, whereas the Labor version might be, which would probably mean we'd miss out on any benefit.
The other Liberal election promise regarding home affordability is also much better for us than the Labor version. The Libs scheme allows parents, grandparents and friends to contribute a total of $1000 a year into home savings accounts for children. The savings would be accessible to buy a first home once the account holder turns 18. This would be a good way for me to invest some money on behalf of DS1 and DS2 in a tax effective manner. I already invest a similar amount for each of them annually via a Child Superannuation account, but those funds won't be available to them until they reach retirement age!
Copyright Enough Wealth 2007
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The other Liberal election promise regarding home affordability is also much better for us than the Labor version. The Libs scheme allows parents, grandparents and friends to contribute a total of $1000 a year into home savings accounts for children. The savings would be accessible to buy a first home once the account holder turns 18. This would be a good way for me to invest some money on behalf of DS1 and DS2 in a tax effective manner. I already invest a similar amount for each of them annually via a Child Superannuation account, but those funds won't be available to them until they reach retirement age!
Copyright Enough Wealth 2007
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Wednesday, 3 October 2007
Kidsnames.com
I was surfing the blogosphere (is that a mixed metaphore?) when I read on Money Blue Book about reserving your kids domain names for future use. I thence surfed over to dotster and checked out the .com for DS1 and DS2's, which happened to be available. So I registered them both for 1 year ($14.95 each). It's a bit of a waste of money right now, as DS1 and DS2 aren't about to setup their own websites for many years (if ever), but if I waited till they might need these domain names they're likely to be taken (their names aren't all that unusual!). I charged the registrations to my Paypal account. Since the money in paypal has been earned from blogging it doesn't seem like real money ;)
If nothing else, when the kids leave school/uni and are job hunting they can use the websites for a glorified C.V. That's assuming that the web and C.V's are still in use in fifteen or twenty years time ;)
Copyright Enough Wealth 2007
If nothing else, when the kids leave school/uni and are job hunting they can use the websites for a glorified C.V. That's assuming that the web and C.V's are still in use in fifteen or twenty years time ;)
Copyright Enough Wealth 2007
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