Money and Life
(Financial Planning Association of Australia)

Time for your next pay rise?

It's important to get paid what you're worth, for your self-esteem and your bank balance too. Find out what's going on with wages and jobs in Australia and whether you should ask for a raise.

Be in it to win it

In spite of all these new jobs promised and delivered, sluggish wage growth seems to be sticking around and could certainly make it pretty tough to convince your boss you've got a strong case for a pay rise. On the other hand, if you don't ask you don't get as a March 2018 report by comparison site Finder shows. In their survey of 2085 people, 3 in 5 who asked for a pay rise got one, receiving an average increase of 5.43%. That's well over double the current WPI figure of 2.1%.

However, the survey also shows alarming results for how successful men are compared with women in the salary increase stakes. Men achieved a higher average increase of $3919 compared with women ($3697). This goes some way to helping us understand why the gender pay gap in Australia is as high as it is, with men earning 15.3% more on average for doing the same jobs as women. As well as being less successful in their negotiations, part of the reason could also be because women aren't as likely to come forward and ask. According to the same survey, almost twice as many men as women asked for a pay rise 32.2% compared with 18.5%.

All fair and above board

Knowing what others are paid can be important when it comes to deciding how much to ask for yourself. When salaries are cloaked in secrecy you can feel like you're selling yourself short if you ask for a modest raise or being greedy when you expect a lot more.

A number of countries are certainly putting pay transparency high on their policy agenda, in a bid to eliminate the gender pay gap. In the UK, mandatory gender pay gap reportingwas introduced in April 2017. The new measure requires all UK organisations with 250 or more employees to publish gender pay gap figures by April 2018 and take action to close any reported gap. Iceland have taken it a step further by making it illegal to pay women less than men. From 1 January 2018, all companies in Iceland with more than 25 employees will need a government certificate to prove pay equality for their remuneration or face fines. This bold move should come as no surprise from a country that has been ranked best in the world for gender equality by the World Economic Forum for nine consecutive years.

Should I be asking for more?

Regardless of whether you're a man or a woman, if you have a sneaky feeling you should be asking for a raise, here are 5 excellent reasons to have a conversation with your boss or HR manager about your salary:

1. Your job description hasn't been checked against comparable roles in other organisations for years. Benchmarking rewards within your sector is a reasonable way to settle on a fair rate of remuneration.
2. You always reach assigned goals or often exceed them and go the extra mile to help your team.
3. You have no timeframe or progress measure for when you can expect your next pay rise and no knowledge of what the amount of your pay rise is linked to.
4. You see your company spending money on other things but keeping salaries much the same.
5. You've raised the issue of a raise in the past and your boss knocked you back, saying 'you're lucky to have a job at all.'

Make sure you take a look at some tips for negotiating for a pay increase to help you prepare. And if tackling the issue of pay in a clear and reasonable way doesn't get you anywhere, have a good long think about whether you're really valued by your employer and what the future might hold if you stay in your current role.

Thinking about asking for a pay rise soon? Get tips for negotiating for a pay increase and give some thought to the real cost of shifting the work/life balance before you decide to take on more responsibility.

ASIC's MoneySmart
moneysmart.gov.au

Superannuation basics

If you're hoping for a comfortable life in retirement, spend some time learning about your superannuation (super). Taking a few steps now could significantly boost your super and make a big difference to your future lifestyle.

• What is super?
• How to choose a super fund
• How do I make super contributions?
• What happens to my super money?
• When can I access my super?

What is super?

Superannuation is a tax effective way to save for your retirement. It's similar to a managed fund where your money is pooled with other members' money and invested on your behalf by professional investment managers. Generally you will not be able to access this money until you retire.

Your employer will make contributions to your super fund and you can top it up with your own money. The government may also make contributions if you are a low income earner.

How to choose a super fund

Most people can choose which super fund they'd like their super contributions paid into. Check with your employer to make sure you can choose the fund your super is paid into. Super comparison websites can help you compare super funds. See choosing a super fund.

Some industrial awards specify a fund or a choice of a few funds that super must be paid into. In these cases you may have limited or no choice of fund.

When you can choose your super fund, tell your employer by filling in a standard choice form from the Australian Taxation Office (ATO) or from your employer. If you don't (or can't) choose your own super fund, your employer will put the money into a 'default' super fund, known as a MySuper account. See types of super funds.

Insurance through super

MySuper funds have a default level of death, disability and income protection insurance that you will automatically be covered for. If you don't want this insurance you will need to tell your super fund you want to cancel it.

Insurance through super can be cheaper than similar cover outside of super and you can usually request to increase it if the default cover is not enough to suit your needs. See insurance through super for more information.

How do I make super contributions?

There are typically three types of super contributions: employer contributions, personal contributions and government contributions.

Employer super contributions

For most people, your employer must pay an amount equal to 9.5% of your salary into your super fund account. This is on top of your salary or wages. Over the course of your working life, these contributions from your employer add up, or 'accumulate', which is why they are known as accumulation funds. Your super money is invested by your super fund so you will earn investment returns on the money.

Employer contributions are based on your 'ordinary time earnings'. For example, if your ordinary time earnings are $50,000 then you should be paid an additional $4,750 into super. Ordinary time earnings are what you earn for ordinary hours of work including over-award payments, bonuses, commissions, allowances and certain paid leave. See the ATO's information on using ordinary time earnings to calculate the super guarantee.

Work out how much your employer should be paying into your super fund.

employer contributions calculator

Super contributions if you're self-employed

If you are self-employed you are responsible for making your own super contributions, but they are tax deductible. See super for self-employed people for more information.

Personal super contributions

You can make extra contributions by:

• Salary sacrificing - Your employer can direct some of your pre-tax income into super. This will be deducted by your employer and sent to the fund with your employer contributions.
• Personal contributions from your pay - You can ask your employer to make personal contributions from money you have paid tax on. Lower income earners who do this may be entitled to government co-contributions. See super contributions.
• Bank transfer - You can transfer some of your savings into your super account using BPay or direct deposit. Ask your super fund for details.
• Super transfer - Transferring all or some of your super from another fund into your main super account.

Bonus contributions from the government

If you put your own after-tax money into super, you could receive a government co-contribution, depending on how much money you earn. Lower income earners can receive up to an extra $500 by making personal after tax contributions. See super contributions.

If you earn up to $37,000 you may also get a 'low income super tax offset' of up to $500 from the government. You don't need to add extra money to your super to be eligible for this payment. Both of these payments will be paid into your super automatically after you have lodged your tax return.

What happens to my super money?

Money in your super fund account is invested by your super fund. Most super funds offer a variety of investment options. These usually include pre-mixed options that will contain a mix of different asset classes, and single sector options such as cash, property and shares.

Your investment returns will impact how quickly your super grows so it's important to choose an investment option that is appropriate for your investment timeframe and tolerance for market fluctuations. See super investment options for more information.

If you have more than one super fund you can combine them to save fees and make it easier to keep track of your super. Read more about consolidating super funds.

When you retire your super can be taken as a lump sum, a regular income stream, or a combination of both. If you choose to take your super as a retirement income stream, the money that you're not accessing continues to work for you and earn interest. See income from super for more information.

When can I access my super?

If you retire and have reached your preservation age, you can withdraw your super. The table below shows when you can access your super, according to when you were born. Here are more details on how to get access to your super.

Your date of birth	Age you can access your super (Preservation age)
Before 1 July 1960	55
1 July 1960 - 30 June 1961	56
1 July 1961 - 30 June 1962	57
1 July 1962 - 30 June 1963	58
1 July 1963 - 30 June 1964	59
From 1 July 1964	60

 

Understanding how super works can help you make the most of it, whether you are just starting out, are close to retirement or have already retired. Learn the basics and you can become your own super hero.

Related links

• Superannuation calculators - Crunch the numbers on your super
• Is your super on target?
• Keeping track and lost super
• Super scams

Money and Life
(Financial Planning Association of Australia)

A survey of 1100 high school students suggests many are confused about how credit cards work. Are new technologies making it harder for young people to understand what money management is all about? And what can we do about it?

Understanding what happens when you spend money on your credit card seems to be something of a blind spot for young people living in the 21stcentury. When asked how long it would take to pay off a $2,000 credit card debt, making minimum repayments only, more than half of 1100 high school students surveyed believed the debt would be settled within 3 years. Assuming an interest rate of 18%, it would actually take more than 15 years to clear the balance[1].

In today's world where tap-and-go technology and online shopping are the norm, the choice of ways to spend our money keep growing. So just how serious an issue is financial literacy for our kids and teens? We spoke to Kendall Flutey, co-founder of Banqer financial education software to get her take on the importance of financial education and what we can all be doing to help kids understand their responsibilities around money.

What are some of the new challenges young people are facing when it comes to taking control of their finances?

The way we're managing our finances in the 21st century is evolving, and fast. At the heart of these changes is the increasing intangibility of money as we move towards a cashless society. Although this is a really exciting innovation that can make it easier to keep track of money, it causes some issues for our youth. Spending digital currency just doesn't have the same psychological trigger that handing over a ten dollar note does it's a softer loss. It's that much harder to put the value of what you're buying in context a bottle of Moet seems equivalent to a bottle of milk when it's just the tap of a card away. So when young people are out in the world spending their money, we often see a big disconnect between actions and their financial consequences.

What signs are we seeing that young Aussies lack awareness of key financial concepts?

The issues we're seeing with financial literacy aren't new, but they're more widespread. From the early interactions we're having with 5,000 Aussie kids using our platform we're certainly seeing kids who don't comprehend the responsibilities that come with servicing debt. And we're seeing many children in our learning environment struggling to maintain positive cash flow. This kind of activity in kids (and adults too!) often comes with other negative financial behaviours, such as a lack of regular savings and/or a disregard for the future.

Thankfully, at a young age these behaviours can be changed more easily! By making kids aware of the consequences of their assumptions and actions, we can help them become more financial literate and responsible.

What do you think are some of things causing this lack of awareness? What can be done to change it?

It's important to remember that no real ownership is granted over the life skills that support good money management. Australia hasn't mandated these lessons in schools, so the burden mostly falls on parents. I think it's true to say that the majority of us earn our financial stripes by seeing what our parents do, and through our own trial and error.

For a busy parent, making time to talk about money may be something that's less important than other types of guidance and education. And for others, their own lack of financial capability can be detrimental as it gets passed along to the next generation. Financial illiteracy is shown to be a cyclical problem, entrenching inequality and often leading kids to adopt negative financial behaviours from a young age. Parents in this situation may not intend to model poor money management but when you're having a hard time keeping financially afloat yourself, teaching your kids to do the opposite is an unlikely outcome!

In order to change this and ensure equal access to a standard level of financial literacy for every child in Australia, we need to find a new way to deliver a robust financial education, at least from an academic perspective. I believe the place for financial lessons to be learnt is in our schools. Parents still play a valuable role but just as with other educational subjects, school makes the most sense as the place to be taught this important life skill.

What are the real world risks for young people with limited exposure to the basics of personal finance?

Personal finances are often a balancing act. Education plays a crucial role in getting the balance right between income and expenses in order to achieve a surplus. In the last decade or so we're seeing a powerful force tipping the scales: hyper-consumerism. This has a profound impact on our kids and teens who are being targeted by increasingly sophisticated marketing tools and techniques, to the point where it's hard to tell the difference between online advertising and an authentic content post.

At the same time, we've seen financial education standards falling amongst our youth, which only makes things worse. This corresponds to a higher risk of our next generation living with debt, permanently. If you're determined to keep buying and don't have the financial savvy to understand the consequences of these decisions it can shape your entire financial future.

What can parents and schools do to support kids towards a more responsible approach to managing their money?

I believe parents and schools both have a role to play here. Parents are better positioned to speak candidly about past and present monetary experiences, oversee engagement with real financial products and services, and foster a safe environment for kids to experience their 'financial firsts'. Schools, on the other hand, can really reinforce the fact that financially focused conversations are an acceptable and normal part of life and education.

School should also act as the sandbox environment, a place where kids can make monetary mistakes, understand the consequences and learn from their experience. Regardless of the tool, resource, or online platform they choose for these activities, I feel all schools should incorporate practice of these vital life skills into their curriculum.

The FPA and Banqer are working in partnership to boost financial literacy in our schools. Looking for ways to help kids learn some positive financial habits? Find out more about money lessons new and old for your children.

[1] ABC News, Cashless kids: Is tap-and-go technology promoting financial illiteracy? Kathy McLeish, 17 August 2017. http://www.abc.net.au/news/2017-08-17/cashless-kids-what-is-tap-and-go-doing-to-the-younger-generation/8812168

 

(YourLoanHub)

As a home owner or property investor, you may have heard the term 'overcapitalising'. But what exactly is it and why is it considered bad?

While adding a new deck or kitchen can increase the value and enjoyment of your property, overcapitalising can end up costing you more than you planned. Here's a closer look at what overcapitalisation is, why it's bad, and how you can avoid it and still increase the value of your property.

What is overcapitalising?

Simply put, overcapitalisation is when the cost of a home improvement is more than the value it adds to your property.

For example, if you buy a property for $500,000 and spend $100,000 on a new outdoor kitchen area with timber decking and fancy landscaping, it doesn't automatically increase the property's value to $600,000. If similar properties in your neighbourhood are selling for a maximum of $525,000, your eye-popping improvements are unlikely to increase the selling price beyond this meaning you have overcapitalised.

Why should overcapitalisation be avoided?

Aussies love investing in their homes. However, keep in mind that while certain renovations can increase the value of your home, there is an upper limit on what properties are worth at any given time. If you find yourself in a situation where you have to sell an overcapitalised property on short notice, you could find yourself losing out on your investment.

Increase the value of your property without overcapitalising

While overcapitalising is never a good idea, there's no question that the right renovations can significantly add value to a property. Some areas where home improvements can make a big difference include:

• new curtains or blinds
• a fresh coat of paint inside and out
• updating light fittings with modern fixtures
• renovating an old kitchen or bathroom
• refinishing floors and replacing carpets
• adding a carport or garage.

When it comes to renovations, the key is to increase the kerb appeal without exceeding your budget. Consider your neighbourhood and the types of features that buyers or renters are likely to be looking for, and be willing to set your personal preferences aside. While you may enjoy having a beautifully landscaped yard or pool, the next person living in the house may not. In other words, it pays to be practical.

A good rule of thumb

In general terms, you'll probably avoid overcapitalising if you keep the cost of your renovations to less than 10% of the value of your home. The less you need to invest in your home to give it that wow factor, the more you can expect to get back when it's time to sell. And always keep a close eye on the sale price of similar properties in your area.

With many people continuing to depend on property investments to meet their financial goals, it's important to make sure you have the right information and tools on your side. Talk to your mortgage broker about how to unlock the full potential of your home or investment property with a renovation.

(Money and Life)

Are all types of advice about financial products in your best interests? According to a recent ASIC report, the 'general' and 'personal' labels make it hard to know what type of financial advice you're getting.

Thanks to a new research report from ASIC, we may be seeing a much needed change in how different types of financial advice are understood by consumers. For many years, anyone working in the financial services industry has been required to describe advice services as 'general advice' or 'personal financial advice'.

But according to the ASIC findings, these terms are confusing to say the least. Their research shows that while 53% of customers could correctly identify general advice, only 19% could identify personal advice.

What's the difference?

As well as signalling the need for clearer communication on different types of advice, the research also throws up even bigger warnings concerning customer expectations of advice they're receiving.

So what are the differences between these two advice categories?

General advice does not take personal financial circumstances into account and you must be provided with a warning to this effect. So when recommending a product or service under a general advice arrangement, a financial services provider is not required by law to make a recommendation that best serves your interests.

Personal advice on the other hand must be based on a careful review of your financial position and goals and consider your best interests at all times. There are in place to make sure personal advice meets these requirements. These same regulations don't apply to general advice.

What needs to change

ASIC's Mind the Gap report highlights just how alarming customer confusion about different types of advice is. When acting on general advice, they might expect to benefit from consumer protections that simply don't apply.

"This disturbing gap in understanding whether the advice they are getting is personal or not means many consumers are under the false premise their interests are being prioritised, when no such protection exists," said ASIC Deputy Chair, Karen Chester.

The report also notes the increasing number of complex financial products provided under a general advice arrangement, leading to greater potential for customers to make choices that put their finances at risk. "ASIC is seeing increased sales of complex financial products under general advice models so not tailored to personal circumstances leaving many consumers, especially retirees, exposed to the potential risk of financial loss," says Chester.

This confusion about different types of advice was also flagged in a recent Productivity Commission report on competition in the financial services industry. In a submission to the Productivity Commission, the Financial Planning Association (FPA), included a number of recommendations designed to ensure clients can be clear about whether they're receiving the best advice for their circumstances.

The most important of these recommendations included:

• Only using the term 'advice' when the financial service and recommendations provided take into consideration personal circumstances.
• Renaming general advice to remove the confusion. The FPA suggested 'general product information' or 'financial product information' as alternative phrases.
• All licenses and regulations that currently apply to general advice should remain in place, regardless of the name change.
• The renamed 'general advice' services should continue to carry a clear warning that information provided is not financial advice.
• A product recommendation without understanding your goals, objectives and financial situation is not personal advice.

What to look for

There are all sorts of life stages and events we go through and the right financial advice can have a significant impact on how we experience these changes.

"Australians are looking for support with things like debt management, cash flow and budgeting," says Dante De Gori, CEO for the FPA. "It's essential that more people seek the help they need with these financial challenges because getting it right can set them up for a more secure future."

That's why it's so important to understand the difference between personal financial advice and general advice. A product or service recommended in a general advice context might seem to be a good option for your situation. But without knowing what the alternatives are, you may not be making the choice that's in your best interests, now and in the longer term.

So how do you know what is and isn't personal financial advice? Here are a few guidelines to help you understand what to expect from a personal financial advice service:

• Personal financial advice can only be provided by an individual, not a financial institution.
• The person providing advice must be a qualified financial planner listed on the Financial Adviser Register. All FPA members are qualified financial planners and you can use the FPA Find a Planner search to find one near you.
• Personal financial advice will always include a Statement of Advice (SOA), with a number of recommendations tailored to your circumstances.

Want to make sure the financial advice you're getting is right for your situation? Here are five questions to ask a financial planner to make sure they're qualified to provide the advice you're looking for.