Personal Investment Good money sense vital

Press, 26 September 1989, Page 26

Personal Investment Good money sense vital

By

LIZ GRIFFITHS

Young people need to become involved in financial management. When many of us began working some years ago, we did not talk about money and its management. We were simply expected to become involved in our job and we got paid. Nothing was ever said about what we should have done with our income. But times have changed. I meet managers who consider sessions on general money matters to be an integral part of on-the-job training for younger staff. Many employers even believe that providing information on retirement planning, for example, is part of their on-going responsibility to their staff. This is an encouraging beginning. During the last 50 or so years, many financial responsibilities have changed little. People still need to save hard to buy a house and clear a mortgage. Families grow up

and become increasingly expensive, the car needs to be upgraded and there must be time and money available to have fun. Yet people still prejudice their chances for financial success. They seem to lack the necessary guidance and information. Learning about money management, the way I understand it, is not taught as widely as it should be. Except for a minority of commerce students, most pupils leave school without even a rudimentary knowledge of how to use the scarce resource of their wage packets in order to maintain a healthy balance between prudence and having a good time. Young people will, no doubt, wonder why they should be interested in financial management. The fact is few young people have parents who

are able to give them a headstart with some effective savings programme. Also, we are becoming more of user pays society and will rely less and less on Government assistance if we get into real difficulties. The financial health of our nation depends on the financial health of us all. The less well prepared will be drawn down into a greater degree of poorness than presently exists in New Zealand. New Zealand appears to be following overseas trends, especially those of the United States, where the percentage of poor people is increasing. But even those people receiving a low income can achieve financial stability with prudent money management. It is sobering to consider that a 20-year-old today has only about 480

monthly wage packets until he or she is 60 years old. This means there is a finite time .in which to accomplish all those events that cost so much money.

Maybe it is not really a surprise to learn that 90 per cent of New Zealanders retire absolutely reliant on Government superannuation. This becomes a major portion of their income. Without it, they would be destitute within a few years. Unfortunately, with the increasing proportion of retired people in our society, the Government’s ability to support people without their own savings will be reduced considerably. This problem is also being compounded because retired people are tending to live longer.

This means that in the future, parents may be less likely to assist their children financially. Par-

ents will be paying more attention to their own needs.

For today’s 20-year-old, in an increasingly competitive world, it is going to be more of a go-it-alone deal.

But for most young people, the idea of spending time on budgeting and cash management just does not appeal. Tney seems to be most interested in what they can purchase with their wages once the initial commitments, such as board or rent, are taken care of. Budgeting is simply knowing how much is earned each week and knowing precisely how it is spent. The key to budgeting is determining how much to keep. A portion must be saved for later use.

It is difficult to have general rules, but as a guide, your income can be divided into thirds: one

third for fixed costs such as board, food and transport; another third for spending on clothes holidays and other attractions; and the remaining third is saved. From the third that is saved, this can be further divided. These categories could be short-term savings or loan repayments; saving for a deposit on a house or early mortgage repayment; and long-term savings for retirement and life insurance.

All big things have simple beginnings. Paying off a car is for many people the first hurdle. Then there is an overseas trip. There are so many things one may want. If a 20-year-old takes home $2OO a week, the prospect of buying an $BO,OOO house is daunting, especially if $9O each week is used to pay rent. For a tertiary student, owning a house does not

A "PRESS" ADVERTISING FEATURE

even bear thinking about. A major key to financial success is simply to save before spending. Careless borrowing is burdensome. To delay buying that expensive leather jacket or smarter car until more money is saved might be wise. Hire purchase or overdraft facilities are for the last resort, or for when an item is absolutely necessary today. To borrow heavily for a commodity such as a car that immediately depreciates in value makes no sense at all. Furthermore, to accept a loan from a finance company without checking what your bank has to offer could prove to be costly. The bank might offer a lower interest rate.

All this leads to the importance of learning financial management and budgeting. The wise use of money has a tremendous effect on ongoing lifestyles. Young people need to learn something about financial management before they receive their first pay packets.