High School Leavers - Financial World
I gave a talk to a group of high school students the other day and it occurred to me that the financial world school leavers face is fraught with volatility, fragility and uncertainty.
Here's some facts and figures they might like to think about over the next nine months:
There is a New Zealand birth every nine minutes and a death every 17 minutes. Add to this an immigrant arrives every eight minutes The average age of New Zealanders is 36.7 years and the number over 100 years of age is 500 We now have 89,000 millionaires, but the average household's net worth is about $289,000
Sadly, the number of divorces in 2015 was 8520 so about one in three marriages are going to fail. The average length of a marriage is 13.7 years. Possibly even sadder is that we have 9000 people in prison.
The population of 4,770,000 is 51.3 per cent female and 48.7 per cent male and about 3,400,000 of them are over 21 years old. We have about 1,550,000 households and about 62 per cent of New Zealanders own their own home.
Those are the facts and now for a few guesses inside New Zealand over the next 50 years, with no allowance for inflation:
I would suggest that you arenot likely to be eligible for national superannuation until you are 70-72 years old - presently it's 65.
Maybe 27 of 100 people won't get to 70 – 72 and it's possible, even likely, that you may have more marriages than children. About three of 100 people will be millionaires by the time they are 72. Men might live another 19 years after 72 and women 22 years.
If from the age of 20 you saved $2,600 per year ($50 a week) and averaged an annual return of 3 per cent tax paid on those savings and reinvested the interest each year you would end up at 72 with about $320,000. If the return averaged 6 per cent this figure would be $620,000 and at 8 per cent $1.8 million. This is all about the power of compounding interest plus your perseverance and discipline.
In this world of ours it is increasingly becoming evident that being average for you and I is not going to work. More and more employers will realise they cannot afford to employ average or below average employees. Your education and training is looking crucial for your future wellbeing.
Anything you like doing means you will probably be good at it. I am getting job satisfaction 90 per cent of the time. Don't hope for 100 per cent, head for 90 per cent. I spent a year in a job I didn't like many years ago and I still think about it every second day.
One marriage is enough. Take your time as you will lose at least three – five years of your financial life going through a second marriage. I didn't get married until I was almost 30 years old, but we had 40 years of marriage until she died five years ago.
There is a very good book called How to Win Friends and Influence People by Dale Carnegie. It was written some years ago and you need to own it and then make sure Mum and Dad also read it.
Your cash flow is crucial and you must control your bank account. Get it wrong and your bank account will control you. Profits and losses are probably just words for most of you at this point, but profits you need to manage.
There is nothing wrong with a student loan of maybe $15,000 - $20,000 as long as the course is successfully completed. Anything much more than that needs some real thought and top advice but it may still be the right move. Don't be put off by debt – there is good, bad and ugly debt .Good debt could be student loans and house mortgages; bad debt is where the asset is decreasing in value each year such as cars and motorbikes. Ugly debt is where the assets are decreasing each year and the interest rate is high and they shouldn't probably have been bought unless you have the cash – boats are a good example.
Build your financial reserves as soon as you can. You are going to strike risk in all sorts of disguises. Calculated risks are the key and your risk taking needs to have an 80 per cent hit rate of success. Listen to Mum and Dad and the financial pain they have been through. There is no point in you going through the same pain.
The best way to get rich is to get rich slow – perseverance is the key. True wealth building is hard but people are still doing it every day. I am not against toys – just toys that eat your lunch – fancy cars are an obvious example but there are others. The maximum number of credit cards is one and it should have a low limit.
Top advice is one thing but poor advice is another matter. When Henry Ford first went into business he asked a big group of influential people what they really wanted and their reply was a faster horse.
When you have a chance to hear from someone who has done well in life you only need to pick up one or two ideas and the exercise will be worthwhile. Richard Branson once said: "You don't learn to walk from following rules, you learn by doing and falling over". Bill Gates said: "Your most unhappy clients are your greatest source of learning". Warren Buffett said: "Risk comes from not knowing what you are doing". Colonel Sanders of Kentucky Fried Chicken said: "There is no reason to be the richest man in the cemetery – you can't do any business there".
You are going to read more and more about the inequality of income and the inequality of assets of people around the world. You need to be aiming for the group that has above normal income and ends up with above normal net assets.
As for planning for retirement when you are 20 years of age, forget about it. But re-read these notes when you are 35 years of age when you have a partner, children and a sizeable mortgage. Only then will you understand what stress and responsibility really mean.
Pita Alexander is an accountancy and agribusiness director at Alexanders.