Eureka Report: Four financial gifts for the family
The act of giving can be extremely fulfilling. For some, this might particularly be the case where that involves family members or loved ones.
Over my years advising private clients, the conversation around estate planning and succession has increasingly brought to light a real desire for some to commence some familial wealth transferal during their lifetimes.
Notably, a recurring theme in these discussions is that the client has frequently sought to gift with purpose, and to make a real impact with an ongoing benefit rather than simply giving for giving's sake.
From helping younger ones to get started on their savings journey to children who might already be well established, a trusted adviser can act as a great sounding board in helping you achieve a meaningful outcome when it comes to assisting the next generation in their financial lives. Sometimes even seemingly small seeds can harvest lasting reward. Here is some food for thought:
The advice step
Encouraging engagement with your own network of professionals can make for a great introduction to, and foundation for, good financial management into the future.
While those in their 30s and 40s may benefit from comprehensive planning, there is no reason it cannot start earlier on with younger children or grandchildren wanting to make better use of their savings and get investment fundamentals under their belt.
As the saying goes, the first step is always the hardest. Helping to facilitate the first step could, however, open the gateway to one starting on the road to their highest potential.
As perpetuated in 2015 federal Budget, and subsequent recent adjustments, the ability to contribute to superannuation has diminished significantly over several years. Under new proposals, from July 1 next year the concessional contribution limit will reduce to $25,000 for all. This means that a final push to make larger contributions in one’s 50s is no longer what it once might have been.
Unless there is a concerted effort to start early, it will be difficult for many to accumulate sufficient retirement funding within the superannuation environment, let alone arrive at the $1.6 million tax-free pension cap.
We know that with the effect of compounding investment returns, even seemingly small but consistent contributions early on can have a marked impact on one’s accumulated balance over time.
Things like a mortgage and childcare obligations can, however, make it near impossible for a young family, for example, to justify extra contributions into superannuation regardless of the evidence presented as to its merits.
Potentially doing so on behalf of an adult child can have an expanding effect that will pay dividends well into the future. The preserved or restricted nature of superannuation also maximises the likelihood that the funds will be utilised for the purpose they were intended.
The insurance question
Whether it is cost, lack of understanding or the quintessentially Australian 'she’ll be right' attitude, the country’s underinsurance problem has been well documented. Lifewise states that while 83 per cent of Australians have insurance on their car, only 31 per cent have income protection insurance.
Unfortunately most know too well the devastating effect that unforeseen illness or injury can have; the financial impact potentially crippling. Experience has shown that these impacts can be far reaching as parents and grandparents may step forward in a time of crisis to offer support in any way possible. Most often, and naturally, this assistance will be financial.
Cost, or the perception of, is frequently cited as the key inhibitor to adequate protection in the form of insurances. Funding personal insurance premiums on behalf of children can ensure the peace of mind that not only they and their families are protected but also that one’s own well-laid financial plan is not suddenly and unexpectedly placed at risk.
Many a discussion has been held regarding contributions to grandchildren's education costs. While there is increasing propensity for grandparents to take involvement, for the majority, fully funding school fees is an unviable prospect given the potential quantum and duration of the commitment. There are, however, other alternatives which are in keeping with the objective.
Co-curricular activities and school extras – like laptops, textbooks, musical instruments, sporting equipment and uniforms, etc – can potentially run into the thousands over and above the headline annual school fee. And many schools offer optional excursions and overseas trips aimed at complementing and deepening the academic experience.
Making contributions to the ‘extras’ not only relieves financial pressure on the parents but can be a great way to support and foster a grandchild's particular interest or future educational outcomes – without the potential overcommitment.
When it comes to intergenerational wealth transfer, what might be appropriate will of course very much depend on the specific circumstances; and while the possibilities are endless, they must speak to what is most important to you.
It might pay to think a little outside the box. In any event, having children involved in the advice process can be most valuable in cultivating a strong sense of financial literacy and responsibility, which in itself is a wonderful legacy.