We lead this week’s issue of The Rub with a story by reporter Annabelle Dickson about how to get ahead financially in our current income recession. Real wage growth has been low or non-existent for a number of years and the International Monetary Fund has forecast that this situation will continue for years to come.
Older readers will remember the days of high inflation and high wage growth, when it made sense to borrow to the hilt, acquire property and other assets, and assume that rising income would mitigate borrowing costs over time. Then later in our working lives, we could pour money into super.
That’s not how it works today and people need to take a different approach, as Dickson’s story explains. Her core message is that the earlier people joining the workforce start saving and allow compounding to work its magic, the better off they will be. The approach to debt should be much more conservative than in the past.
Results of a survey conducted by ME Bank show that the earlier we start learning how to deal with money the better.
ME surveyed 1000 adults, looking for links between ‘financial wellness’ and financial experiences in childhood and early adulthood.
Of those surveyed, 59 per cent described themselves as ‘effective savers’ and 56 per cent described themselves as ‘financially comfortable’. However, among those who received advice about money or were involved in money discussions while they were growing up 74 per cent described themselves as effective savers and 64 per cent said they were financially comfortable.
There were similar high scores in response to these questions among people who were involved in family budgeting while growing up, who had parents who were good role models for managing money and who read about money skills.
Interestingly, it made very little difference whether or not people received pocket money.
What ME also found is that relatively few of us had the benefit of these experiences. When asked when they learned their most important money lessons, 38 per cent said it was when they started work, 17 per cent said it was following a home purchase, and only 16 per cent said it was before leaving home.
It can seem like an unnecessary intrusion into the life of a child to get them thinking about managing budget, saving and investing. Thinking about retirement income can certainly seem like a step too far.
But what ME’s and other surveys suggest is that it is never too early, especially now when we have to prepare young adults for the income recession.