5 financial mistakes your parents made that you should avoid

October 3rd 2017 | Categories: Money, Family & Relationships |

young family of five walking and skateboarding to beach through street

It’s hardly surprising that many people turn to their parents for help on money matters in Australia. Your parents probably set up your first savings account, shelled out your pocket money and established an early financial example to follow.

So should you trust financial advice from your mum and dad? A recent National Australia Bank survey showed that 82 percent of respondents said financial advice they received from friends and family was good to excellent.

People clearly trust the money management gospel, according to their parents. But let’s play devil’s advocate and see whether you can avoid your parents’ financial mistakes. You may not even know they were making them!

Wanting a second opinion? Speak to a professional financial planner today.

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1. Opting to save rather than invest

Every generation goes through economic boom and bust periods. If your parents (or their parents) were unlucky enough to sustain serious losses in a big stock market crash or financial crisis, they’ll understandably be wary of investing.

Perhaps this is why only 13 percent of mums and dads choose to set up a shares portfolio as a savings strategy for their children, according to Stockpot data. But failing to consider an investment strategy could be a mistake.

Stockpot’s research shows that a $2,000 initial investment – with monthly $100 top-ups – in a high-growth portfolio could result in $60,000 over 20 years. A savings account with today’s average interest rate of 2 percent would achieve just $32,500 over the same period.

2. Sticking with one employer

Loyalty to an employer is admirable, but your parents may have paid a hefty financial price if they stuck it out with one company for their entire career. A Forbes article has claimed that employees who stay at jobs longer than two years earn 50 percent less over a lifetime.

Wage growth in Australia increased by just 1.9 percent in the year to  June 2017 1, so changing jobs may be the best way to achieve a substantial salary increase at the moment.

If the Forbes figures can be believed, then millennials appear to have the right idea, as recent research showed 38 percent are expecting to leave their current employer within the next two years 2. Maybe now is the time for you to consider making a switch?

3. Becoming the Bank of Mum and Dad

Nearly 9 in 10 parents provide financial assistance to their children, a 2015 survey from Finder.com.au found. Yet, only 20 percent admitted getting help from their parents, showing today’s mums and dads are far more willing to provide cash handouts.

Quote: “Many parents want to help their children get ahead but if they aren’t careful it can be detrimental to their financial well-being,” said Michelle Hutchison, Money Expert at finder.com.au. 3

Living within your means and financial planning for the future are important skills to learn, but it can be difficult for generations who have relied too much on the Bank of Mum and Dad. If you’ve picked up bad financial habits from overly generous parents, you may want to consider a fresh approach for your kids.

three generations together playing
Try to pass on good financial habits to your children

4. Failing to plan for a long retirement

Life expectancy has risen dramatically in Australia. Government figures show the average man and woman could only expect to live until 47 and 50 years old, respectively, in 1890 4. Those figures have jumped to 80 and 84 for boys and girls born in 2015 4.

The upshot is that you have to plan for a retirement that might be much longer than the ones your parents or grandparents saved for. Two-thirds of Australians are already worried they won’t have enough super when the time comes, despite half admitting they won’t give their retirement serious thought until they’re in their 50s 5. Don’t make these mistakes – start retirement planning as early as possible.

5. Ignoring property bubbles

Many Baby Boomers have benefited from a thriving property market in their lifetime.

CoreLogic figures show that anyone who owned a capital city home between 2000 and 2003 saw prices skyrocket 73 percent.

The most recent cycle of growth has seen values rise another 49.3 percent.

However, home purchases bought through interest-only loans and similar means could leave owners dangerously exposed. The Reserve Bank of Australia recently warned that one-third of homeowners have little to no buffer against interest rate rises or an economic downturn. The market was a different landscape for your parents, so plan your next property purchase carefully.

Should you trust financial advice from your mum and dad? It’s not for us to say; but why not talk to an expert as well? Contact Invest Blue today.

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Cited Sources: 

[1] http://www.abs.gov.au/ausstats%5Cabs@.nsf/mediareleasesbyCatalogue/955FBDF6A933C1FDCA2568A900136286?Opendocument

[2] https://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/gx-deloitte-millennial-survey-2017-executive-summary.pdf

[3] https://www.finder.com.au/press-release-86-of-parents-pay-up-for-their-adult-kids-introducing-australias-sponge-society

[4] https://www.aihw.gov.au/reports/life-expectancy-death/deaths-in-australia/contents/life-expectancy

[5] https://www.mortgagechoice.com.au/news/media-releases/3-in-5-aussies-worried-they-do-not-have-enough-money-in-retirement.aspx

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