A pretty grim financial bombshell was dropped in our laps last week.
While younger Australians have increasingly struggled to get into the property market over the past two decades, older Australians have radically increased their ownership of investment properties, according to the Australian Tax Office.
Though most of us know this to be true at some level, the actual numbers were seriously confronting. The rate of over-60s who owned one investment property in the 2022-23 financial year has grown by 233 per cent since 1999-2000 (from 122,964 to 383,554). Meanwhile, the rate of those who own six or more investment properties grew by 400 per cent, from 1728 to 8646.
Naturally, these numbers will mean different things to different people. If you’re lucky enough to have found yourself born into a family where your parents or grandparents own one or more investment properties that are destined to come your way, it’s good news for you.
If you’re not among the majority of Australians who don’t have a guaranteed windfall on the horizon, though, things might be feeling uncertain not only for you, but also for your own kids.
But even if you aren’t in a position to one day hand down a property (or half a dozen) to your kids, there are still many ways you can help them financially and create a brighter future for them to enjoy. Here are three affordable options to consider.
What every single parent can provide their children with, no matter their income bracket, is a solid financial education.
1. Start putting away money early and often
At the risk of sounding like a broken record, compound interest really is the gift that keeps giving and one of the best ways to get a bang for your buck.
Let’s say, for example, that when your child is born you start putting away $20 a week until they reach the age of 25. That’ll see you part with just over $1000 a year, and $26,000 in total.
If you put those weekly deposits into a high-interest savings account with a rate of 5.5 per cent, that investment will more than double by the time they turn 25, growing to $55,722. That’s because two and a half decades’ worth of compound interest will add a cool $29,722 to the mix.
If you don’t believe me when I say that time can often be more important than the amount, let’s look at it another way. If you put $50 a week away for 10 years, you’d still end up parting with $26,000. Except with only a decade behind it, you’ll be handing your kids $34,597 instead of $55,722 because those lost 15 years will shave $21,075 of compound interest off.
Another great thing about this option over something like a stock portfolio is that there are no fees or taxes associated with transferring the funds over. It also affords you and your children a lot of freedom around how to use the money, doesn’t require a lot of research on your part, and protects the investment from any potential market volatility.
2. Pay for their education
Not everyone will go to university, but the number of people undertaking higher education study is steadily rising. Currently, just over one in three Australians hold a bachelor’s degree or higher qualifications, despite university fees now costing more than ever.
With a standard undergraduate degree costing up to $45,000, taking this weight off your child’s future earnings will go a long way.
While the exact figure will ultimately depend on the course and the institution, using $45,000 as a standard amount and the same high-interest savings plan outlined above, this equates to putting aside $30 each week for 18 years. Alternatively, over the three years of a standard course, you would need to allocate $15,000 a year – or $7500 per semester.
Though having HECS debt is in no way a bad thing, it is long-term debt that young people have to carry with them during the early years of their working lives.
With data obtained by the ABC showing it now takes the average Australian almost a decade to repay their education debt (9.9 years in 2024 compared to 7.3 years in 2006), being able to partially or fully remove this weight can have a profound positive impact.
Not only does it allow your children to focus on putting the first decade of their salaries towards things like travel or saving for their own home, it’s also a practical and lasting investment in their long-term future.
3. Teach them about money, and healthy money habits
For the vast majority of parents, the reality is that handing down properties or other vast inheritances simply isn’t an option. But let’s be clear – there is nothing wrong with that and no parent should feel shame if that’s the case.
Don’t forget, some of the wealthiest self-made individuals in the world have denied their children inheritances! In these stories, there’s usually a common theme, and that is the parents feel they’ve given their kids the building blocks they need to succeed on their own – namely through a good education.
But it’s not just book smarts or formal academics that matter. What every single parent can provide their children with, no matter their income bracket, is a solid financial education and an understanding of money – how to save it, how to spend it, how to budget, how to create and achieve goals, and how to handle debt.
Much like compound interest, this knowledge is something that greatly benefits from time. That’s because children learn through observation and repetition, so the more times they see their parents create and work to a budget, pay bills and save up for something, the more ingrained those healthy habits will become.
It’s important to start small and take time to master the basics. No five-year-old is going to understand the share market, but they will be able to help with writing grocery lists and picking out items at the supermarket. By 15, they might be able to start grasping investment concepts, but only if the groundwork has been laid.
If a solid foundational understanding of how money works, as well as an appreciation for it, is the only inheritance your child receives, you don’t need to worry or feel as if you’ve let them down. Ultimately, that’s one of the greatest windfalls a person can have.
Victoria Devine is an award-winning retired financial adviser, a bestselling author and host of Australia’s No.1 finance podcast, She’s on the Money. She is also founder and director of Zella Money.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
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Victoria Devine is an award-winning retired financial adviser, best-selling author, and host of Australia’s number one finance podcast, She’s on the Money. Victoria is also the founder and managing director of Zella Money.
