saving & spending: Jane Cafarella asks seven young people to record their spending for a week, and financial adviser Anne-Marie Spagnolo offers them her advice.
1. Sam Webster, 14 Earned: $10 Spent: $6.70 Saved: $3.30
Bridget Webster, 11 Earned: $7.50 Spent: $250 (from savings) Saved: $7.50 Sam Webster is broke. “I’ve got $1 in my bank account and 75 cents on my desk,” he says. That’s because he’s taken out all his savings - $500 - to spend on an upcoming family holiday to Thailand. His sister, Bridget, also put $250 in their joint holiday account this week, bringing her total to around $450. Sam receives $10 pocket money a week from his parents and $10 a night for occasional
finding the balance
babysitting from various sources. In the past, he’s also earned money transferring vinyl records to CD for $10 an hour for the family business. Bridget receives $7.50 pocket money a week. In exchange for their pocket money, Sam and Bridget cook dinner on Thursday nights, load and unload the dishwasher, feed the cat, rake leaves, sort socks, vacuum and take out the rubbish bins. Bridget reckons this is a good deal. “I think I get a lot of money for the work I do,” she says. Sam is expected to use his pocket money to pay for his own social activities, such as going to the movies with friends. With his pocket money, he’s saved for and built his own computer for $700. He’s also bought a bike for $500. His next goal is to save for a working holiday to Germany, possibly during a gap year after high school.
Anne-Marie says: They are learning the true value of money by relating it back to the chores they need to do to earn it. As well, they are learning to be savvy with their purchases to enable further savings. Sam and Bridget appear to be good savers and able to keep their eye on the prize which in this case is their holiday to Thailand. Using visualisation, or daydreaming, about all the wonderful things they will do (and eat!) in Thailand can help them stick to their savings plan.
Debt trap We live in a “buy now, pay later” culture where the pressure to consume can cause many young people to fall into a debt trap. Mobile phones and credit cards can become a major source of financial difficulty, and when you factor in declining job security, housing affordability and higher education costs, learning to manage money has never been more important. The key to financial success is to take responsibility for your money. Become a confident, well-informed consumer. Appoint yourself the manager of your own money and set some limits on what you spend.
2. Sam Cook, 11 Earned: $4.60 Spent: $0 Saved: $4.60
Ben Cook, 8 Earned: $3.50 Spent: $0 Saved: $3.50 Sam Cook is already saving for a car. After that, he wants to save for a house. “I love cars and I want to get enough money to buy a good car,” says Sam. How much does he think he might need? “I reckon about 30 grand,” he says. He estimates it will take him about 20 years on his current income of $20 a month. So far, he has saved more than $800 since first receiving pocket money at the age of six. “But when I was six I only got about $5 a month,” he says. In exchange for his pocket money, Sam takes out the bins, tidies his room and cooks dinner “when I want to”. “I cook good pasta,” he says. Sam spent $100 on a guitar last Christmas but is otherwise rarely tempted to part with his money. “If I really
want something I have to put in for it,” he says. “For instance, a couple of weeks ago I went halves with my mum to buy these board shorts I wanted.” Ben, his brother, is also the thrifty type. He’s not saving for anything in particular but likes to have money on hand in case he sees something he wants. However, he suffered a big financial setback recently when he had to pay for a broken window. “I was playing with a tennis ball and it broke one of the windows outside,” he says. “Mum had to take $60 out of my bank account.” For his pocket money, Ben has to “be good, put the bins out and clean my room”. Ben boosts his savings by collecting five cent pieces which can be found in surprising places such as on the floor, in the car or behind the couch. “I collect them so I can take them to the bank,” he says.
Anne-Marie says: Sam should check his estimates to see if he is realistic in thinking that his $20 a month will add up to $30,000 after 20 years. Sam is already closer to achieving his goals by defining when he wants his car and how much it will cost him. Ben should also take note: it’s a proven fact that writing down a goal, including how much it will cost and when you want it, means you are more likely to achieve it than those people who do not define or write down their goals.
There is significant potential for overspending on mobile phones, so try to be realistic: you might want the expensive phone, but can you really afford it right now? Teenagers are major consumers of mobile phone products, including SMS and ring tone downloads, which makes them the target of aggressive marketing by mobile phone companies. So, what happens if you are spending more than you are earning? Welcome to the world of debt! Almost 80% of young people, when asked what they would do if they did not have enough money for something they wanted, said they would find a way to buy it. Only half of those ways involved saving for it! So, why are young people so keen to buy things, when on many occasions they do not have the money to do so? Keeping up with friends, the influence of advertising, and the need to ‘fit in’ with social expectations are the three most common reasons.
3. Finlay Wilkins, 17 Earned: $17 Spent: $11.30 Saved: $2.70 A full year 11 schedule at University High School plus football and basketball leaves little time for much else, says Finlay Wilkins. “I would like to have a job but I really haven’t got time,” he says.That’s why he still relies on his parents for money. “I get my age in pocket money,” he says. In return, he cleans his room and the bathroom and feeds the cat and dog. From that $17 a week, $3 is deducted to help pay for his Melbourne Cricket Club membership. As a result, Finlay says, he is not a saver. “I sort of go out quite a lot and end up buying food on my [debit] card.”The credit balance on this card is usually around $50. In the past, he has worked during the
holidays to earn extra money.To pay for a trip to Bali with a friend, he earned $600 working at Bakers Delight through the 2007 school holidays. He also worked for a week in his father’s furniture manufacturing store, earning $300 to pay for Christmas presents. At other times, he borrows from his parents. Finlay would like to be able to save to attend a music festival at the end of the year and to fund a gap year. “I’d love to have a job to be able spend a bit. I hate having to borrow money.”
Anne-Marie says: Be careful about borrowing too much from your parents if you don’t know how you will pay them back. Finlay’s situation is all about prioritising what’s important. If he prefers to participate in sporting activities rather than paid work, he needs to understand the trade off which is fine if it makes him happy. It seems that Finlay is quite good, however, at gearing up into paid work in short bursts when he has something definite he wants to save for.
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THE AGE WEDNESDAY, JUNE 24, 2009
pocket money take responsibility for your money
spend what you have not got
have a budget and keep to it
forget the ‘lay-by’ principle – put money away now, buy it later
know your spending limits seek help if you get into debt keep a credit-card limit you can realistically manage
forget that credit cards have high interest rates be over-influenced by what others have - get what you can afford forget – saving does work
recognise the difference between needs and wants
Learn more about how to manage your money at www.understandingmoney.gov.au & www.youthcentral.vic.gov.au