As a child, my idea of a peaceful life included visiting my mums parents. Nana would have all the ingredients ready for me and my sister to bake and ice patty cakes. My pop would take me out trainspotting at the port, and fishing on occasion. Afterwards we’d head home and cheekily, and brazenly stomp up the stairs demanding “We want some lunch! We want some lunch!” and we’d sit down to a ham and salad sandwich with a cuppa tea. In the evenings, Nana would cook up a big roast; meat, potatoes, veggies with a gravy that one can only describe as being its own food group, then we’d play Yahtzee while eating biscuits and drinking more tea before turning in for the night.
You’ll notice in my recount above, that my memories of my grandparents had nothing to do with the amount of money they spent on us, but everything to do with the amount of time they spent with us. This is a nice little lead in, to what the bare bones of a peaceful existence are.
My mothers parents raised 5 girls on a single income, in a 3 bedroom house. The house cost a little under $20,000 and my Pop's income was around 1/3 of that. Things were tight for most blue collar families, mostly due to the WW2 generation not utilising birth control measures, either because of cost, or for religious reasons. All 5 girls were put through private school until year 10, and they then went off to work. My grandmother would also work part time at a fruit shop and nursing home during the day to bring in some more coin.
*RECORD SCRATCHING SOUND*
Oh. This isn't the 60s or 70s anymore. The median house price in Australia is $809,201 and the median income in Australia is $85,982. We've gone from house prices being roughly 3 times an individuals income, to a whopping 9.5 times. And according to the ASG (Australian Scholarships Group) it can cost up to $240,679 per child, in private schooling, which has gone up 61% in the last decade. And $66,320 in public.
Each child is expected to have more things now too. Everywhere you look, you'll see a toddler with their own iPad or smartphone. In the decades preceding the new millennium, the technological age had not taken its hold on society, and it was common for the eldest child to pass down his old belongings to their younger siblings. Back then, having a roof over your head and food on the table was all you should expect, and anything else that came your way was scarce but appreciated.
Having children in this day and age, takes more planning than ever before in history. In the 1970s, the average age for a man to be married was 23. Today, that age is now 31. With housing prices being high, wages being stagnant, young adults living at home longer and not to mention, the cynical view many of us late Gen Xers and Gen Yers have on marriage thanks to our baby boomer parents who were, and still are, getting divorced left, right and center, marriage has taken a back seat in our 20's.
Today, the average age of first time mums is 28.6. Where back in the 70's, the average age was in the early 20's. So having your finances in order; stable careers, mortgage is already accounted for, little to no debt and a stable home, needs to be accomplished before increasing the size of your family.
Let's go back to the debt thing. Here's some shocking stats for you. The ratio of household debt to income in Australia, has gone up from 104% in 1995, to 212%. As a country, we have the 4th highest personal debt in the world, only behind Denmark, Netherlands and Norway. Now why exactly is this? Let's put all personal debt into it's percentages:
Mortgage: 56.3%
Personal loans: 3.1%
Investment debt: 36.5%
Student debt: 2.1%
Credit card debt: 1.9%
We often hear that "Young Australians credit card debt is out of control!" and though the stats show it's minimal compared to other forms of debt, it's still a problem. The average credit card debt in Australia is $4268, and this rises with income. The scariest statistic though, is that the average credit card debt for Australians on no income, is $3774. There is a societal problem with discipline at play, not to mention it's ingrained in us from a young age that everyone has credit card debt.
Personal loans include car loans, loans for holidays and other big ticket items such as jet ski's. Overall, this is but a small percentage of the overall debt in the country. The average cost of a new economical car in Australia is around the $25,000 mark, which is actually considerably more affordable than it used to be in the 70's. But, as it goes with our consumer crazed society, the average age of vehicles on the road is 10.1 years, but 30% of those cars are less than 5 years old. With stagnant wage growth, we're still buying new cars often and taking loans out to get them.
Investment debt. Does this not make you scratch your head? People are taking out loans to buy investments. Investments are a vehicle for potential wealth creation. Australians are obsessed with houses. And the banks, up until recently, have been very relaxed with whom they lend money to and how much they'll give them. With property prices going up and up for the last 30 years, it seems like a no brainer to get into property investing. Yet, we have a problem.
*RECORD SCRATCHING SOUND*
Oh. This isn't the 60s or 70s anymore. The median house price in Australia is $809,201 and the median income in Australia is $85,982. We've gone from house prices being roughly 3 times an individuals income, to a whopping 9.5 times. And according to the ASG (Australian Scholarships Group) it can cost up to $240,679 per child, in private schooling, which has gone up 61% in the last decade. And $66,320 in public.
Each child is expected to have more things now too. Everywhere you look, you'll see a toddler with their own iPad or smartphone. In the decades preceding the new millennium, the technological age had not taken its hold on society, and it was common for the eldest child to pass down his old belongings to their younger siblings. Back then, having a roof over your head and food on the table was all you should expect, and anything else that came your way was scarce but appreciated.
Having children in this day and age, takes more planning than ever before in history. In the 1970s, the average age for a man to be married was 23. Today, that age is now 31. With housing prices being high, wages being stagnant, young adults living at home longer and not to mention, the cynical view many of us late Gen Xers and Gen Yers have on marriage thanks to our baby boomer parents who were, and still are, getting divorced left, right and center, marriage has taken a back seat in our 20's.
Today, the average age of first time mums is 28.6. Where back in the 70's, the average age was in the early 20's. So having your finances in order; stable careers, mortgage is already accounted for, little to no debt and a stable home, needs to be accomplished before increasing the size of your family.
Let's go back to the debt thing. Here's some shocking stats for you. The ratio of household debt to income in Australia, has gone up from 104% in 1995, to 212%. As a country, we have the 4th highest personal debt in the world, only behind Denmark, Netherlands and Norway. Now why exactly is this? Let's put all personal debt into it's percentages:
Mortgage: 56.3%
Personal loans: 3.1%
Investment debt: 36.5%
Student debt: 2.1%
Credit card debt: 1.9%
We often hear that "Young Australians credit card debt is out of control!" and though the stats show it's minimal compared to other forms of debt, it's still a problem. The average credit card debt in Australia is $4268, and this rises with income. The scariest statistic though, is that the average credit card debt for Australians on no income, is $3774. There is a societal problem with discipline at play, not to mention it's ingrained in us from a young age that everyone has credit card debt.
Personal loans include car loans, loans for holidays and other big ticket items such as jet ski's. Overall, this is but a small percentage of the overall debt in the country. The average cost of a new economical car in Australia is around the $25,000 mark, which is actually considerably more affordable than it used to be in the 70's. But, as it goes with our consumer crazed society, the average age of vehicles on the road is 10.1 years, but 30% of those cars are less than 5 years old. With stagnant wage growth, we're still buying new cars often and taking loans out to get them.
Investment debt. Does this not make you scratch your head? People are taking out loans to buy investments. Investments are a vehicle for potential wealth creation. Australians are obsessed with houses. And the banks, up until recently, have been very relaxed with whom they lend money to and how much they'll give them. With property prices going up and up for the last 30 years, it seems like a no brainer to get into property investing. Yet, we have a problem.
Housing prices have gone up. But the rentals prices aren't. You'll see in the third image, we're looking at a bubble in the mid-70s, early 80s, late 80s, and today is looking very similar.
I'll talk about other investment debt, like taking out margin loans to buy shares. A margin loan lets you borrow money to invest and uses your shares or managed funds as security. It can help you increase your returns but it can also magnify your losses. To manage the risk of a downturn in stock price, lenders use a Loan to Value Ratio (LVR) which is the amount of your loan divided by the total value of your shares. So if you have $20,000 worth of shares and you borrowed $10,000, your LVR ratio is 50%. If the value of your shares goes down below the LVR , the bank will do a margin call, and you will have to come up with the the capital to get the LVR back to an acceptable level by either topping it up with cash, selling part of your investment or giving security over other investments to the bank. It's a risky move, and unless you study the markets every day, just stay away from it and only invest with money you have, and are comfortable with losing.
Mortgage debt. The big elephant in the room. As I said above, Australians love property, particularly the boomers and we'll keep paying more and more to get the house of our dreams, regardless of the financial ramifications it has. The act of buying a house after you get married, bringing your kids up in it and living in it for the rest of your days before passing it on to your children is all but dead. The housing market is a bunch of stepping stones. Buy one. Build up some equity in it. Sell it and move onto another more expensive one. Rinse and repeat. Stay in debt. Stay a slave to the banks. Wither and die. All I can say on this one is, save as much money for a deposit as you can, and buy within your means. Rent is not exactly dead money, if you're saving the difference you'd pay on a mortgage and put yourself in a much better position to tackle a 40 year long sentence.
Now let's forget about finances for a moment. Say you've already got your money where it needs to be and you're financially independent and trouble free. Let's look at the people in our world. And I'm not referring to the planet. I am referring to your little world. Are these good influences on you? Do they bring out the best in you and add fulfilment and joy to your world? I personally, prefer quality over quantity in all aspects of life. I keep my circle small. It's easy to choose the friends you want around you, but you cannot choose your family. Blood may be thicker than water in consistency, but that's not the case when it comes to loyalty and happiness. If you feel depressed and unhappy with your life, before you look internally, take a look at your surroundings. And then CULL CULL CULL the bad eggs. You live and die in the blink of an eye, don't feel like you have to keep undesirable people in your little world.
To cap it all off, I want you to think back to your childhood. How did your grandparents do things? How did your parents do things? As a grown up now, you can see what they did right and what they did wrong. Learn from those before you.
- Pay off your debts. It's the greatest return on your money you'll ever get.
- Live within your means. That means doing up a monthly budget, knowing exactly how much money you're bringing in, and minimising how much is going out.
- Do not bite off more than you can chew. Can you handle the mortgage repayments if an unforeseen issue comes up, such as your wife gets pregnant and can no longer bring money into the household. Do you really need that brand new $50,000 car?
- And most importantly. Get enjoyment from the most important thing in life, each other. Take your kids somewhere to explore. Play board games and eat lollies together on occasion. Create life long memories, because time is the great enemy. And it is coming for you.
- Short Alpha
