Have you borrowed money from your parents? Had to lend money to a mate? Tim Dean joins us to talk us through the ins and outs of relationship lending. We also take a look at the Australian governments First Home Super Saver initiative for first home buyers and it gets a big thumbs up from us.
The following is a transcript from Episode 17 of the We Talk Cents podcast.
Transcription software is used to create this blog.
Blaize Pengilly 00:09
Personal Finance, budgeting, cash flow and investing don't have to be scary words. The We talk Cents podcast is here tohelp you learn more about money and take control of your personal finance.
Blaize Pengilly 00:26
The We Talk Cents podcast is not a financialadvisor. This podcast is made for entertainment and educational purposes only.All information shared is of a general nature and does not take into accountyour personal situation. You should consider whether the information isappropriate for your needs and where appropriate seek professional advice froma financial advisor.
Dan Jovevski 00:45
For more information, please check it out Wemoney.com.au/disclaimer.
Dan Jovevski 00:51
Hello, you're listening to We Talk Cents apodcast presented by Wemoney I'm Dan your resident finance expert.
Blaize Pengilly 00:57
And I'm Blaize, a recovering spendaholic, we'reabout to talk about news. If you don't care for the headlines, feel free toskip ahead for a couple of minutes. We'll be talking about Australia's fifthlargest bank this week. If you've listened to the show before you'll know whatit is. If you haven't, then you'll probably be in for a shock. And we'll alsobe looking a a super way to save for your first home. Dan news headlines. Whathas caught your eye over the last week?
Dan Jovevski 01:26
Wwe can't escape the saga that is GameStop or$GME for those who have been following at home. This has captured theimagination of Reddit traders who have got involved in the stock and supportinga ailing company, which hasn't yet revolutionized itself with the digital era.But really taking it to Wall Street and telling people like hedge funds andother really sophisticated investors where to go. However, I think we arecoming to a close of his mania, the share price peaked at $347. This is all inus. And at the time of the recording, it's now at $53. So it really is comingback down to normalcy. And we'll just have to wait and see how it is it is forall those peoples I'm not sure if you've been following the memes Blaize. Butthere's this concept called diamond hands by people holding on to the stock foras long as you can. And then if you're selling the stock, it's called paperhands. So I think there's probably a lot more paper hands in the in the stockthan than the diamonds. But I think it's really interesting, right? Millennialsgetting exposed to trading for the very first time taking it to Wall Street andthe big institutions. I thought that was just an amazing thing to watch areally similar point, I think in history, what do you think was?
Blaize Pengilly 02:46
Well, I'm still just as confused about GameStopas I was last week, there were a lot of there were a lot of good things aboutit. And what I did see pop up over last week was Dogecoin, which is the Bitcoinor cryptocurrency based off that Shibu inu is that he said that should be yournew meme dog. So I don't know what's happening with that. But I've seen a lotof that all over my feeds as well. And I've heard that that's sought as well.And as he mentioned last week, Elon Musk, sending the tweet about GameStop. Andthen yeah, he did a one word Dogecoin. One word I think was one word Doge was arecent tweet of his so it seems to be really Mr. Musk in controlling the marketis empowering everyone to inciting a lot of change through just a couple ofcharacters on Twitter. It's pretty crazy. As far as the headlines, Dan, andI've had a look, I have scoured and our friend, the US programmer Stefan Thomasthat lost his password to his bitcoin wallet with over $300 million crypto hasstill not found his password. So we're thinking of you Stefan if you'relistening.
Dan Jovevski 04:02
Yeah, still thinking of you.
Blaize Pengilly 04:04
Yes. All right, Dan, any other news that caughtyour attention this week?
Dan Jovevski 04:09
Well, the only other headline that caughtcaught our attention, which I thought was interesting was a no big bank bashingis probably a national sport for a lot of Australians. And sometimes they getit right. But more often than not, there is cases where they do get it wrongWestpac is facing penalties by the high court for superannuation advice, whichthey've overstepped the financial boards. And the essence of the other story isthat they were telling the customers over the phone that they could save moneyby consolidating the superannuation into one account and potentially save moneyin fees. And this was meant to be covered under the general advice provisionsbut the High Court of Australia and asik have also agreed that this is probablyoverstepping the mark where people got really excited about potentially savingmoney and wrapping everything up together. But there were individualcircumstances So for example, if you have multiple superannuation funds, theremay not be as easy to switch get together in one place, because of course,you've got other considerations like insurance to consider. And some peoplehave quite a bit of coverage when it comes to their insurance like death cover,total permanent disability, etc, which could be extinguished if you move toanother fund. And some of those situations were considered. So I think if everybodygets caught up in say, rolling up what you see, but just consider the otherelements with your superannuation, life insurances that could potentiallyimpact your life in the event that, you know, you were to die. I mean, that'sjust really, really bad, right? You don't want to leave your kids, your lovedones, or anybody not being able to access you know, any funds in that event, orif you were to become incapacitated. So just a word of warning for everybody isplease consider the total situation when it comes to superannuation and notjust the not just the ability to save money on fees by consolidating everythingtogether in one place.
Blaize Pengilly 06:01
Yikes millions of dollars of 10s 10s ofmillions of dollars in fines. I am pissed off if I get a $60 parking fine. It'sgood, though that they're getting caught caught up on it and the consumer willwin in the end.
Dan Jovevski 06:21
Blaize Pengilly 06:22
shall we welcome our guest today, Mr. Tim, KDean?
Dan Jovevski 06:27
Let's do it.
Blaize Pengilly 06:33
Dan, it is pop quiz time. What is my favorite,most reliable, Number one go to bank?
Dan Jovevski 06:44
Oh, wow. Um, well, I don't think you'verecently switched Up bank. And you've uncovered that you can go and deposit yourmoney that you get at the post office. So given that, that's what you'retalking about Up bank.
Blaize Pengilly 06:59
Okay, I do love Up bank. I'm I'm a bit of ahardcore Up bank fan, because they're very cool. But they aren't my favoritebank, my favorite bank, my go to bank. I don't even have a card for it to behonest. It is the Bank of mum and dad.
Dan Jovevski 07:13
Of course, of course.
Blaize Pengilly 07:16
Now we have mentioned the Bank of mum and dadbefore. And the reason I'm mentioning the Bank of mum and dad is becausetoday's guest is joining us to talk about exactly that. Now he's a leadingcommentator and expert in the field of digital finance, and digital financemarketing. He's a founder, advisor, investor and mentor. And he operates inboth Australian and European markets. He spent his career in financialtechnology growing and establishing major online financial services businessesin the UK and Australia, servicing hundreds of 1000s of consumers. He's alsoserved in industry boards to promote best industry practice, and worked withregulators and government to promote Responsible Lending. He's the founder andCEO of Credi, a platform that manages that relationship lending, and he joinsus now via video link. Welcome Tim Dean. How are you going, Tim?
Tim Dean 08:09
Good morning. Good morning. How are you both?
Blaize Pengilly 08:12
Yeah, very well. Tim, thank you so much forjoining us. Now, Tim. As you would have heard, I am a huge fan of the Bank ofmum and dad. But what exactly is the Bank of mum and dad? And how big is it inAustralia?
Tim Dean 08:27
Well, yeah, look, I enjoyed the pop quiz.Actually. Thank God, you didn't say bank was Xinja? That would have been a bitof a mistake.
Blaize Pengilly 08:35
Dan Jovevski 08:36
Rest in Peace
Tim Dean 08:38
Know the the the Bank of mom or dad probably ishas an attribute that is topical in that regard. And that it's always beenaround. And it always will be around. So you know, the vagaries of trends ofcommercial imperatives of new fintechs, newer fintechs and even newer fintechsthat come and go. But the good old, reliable Bank of mum Dad always sits therechugging away in the background, offering finance to family members in thecontext of children, but also in the context of people lending to each other.So I'm talking on behalf of probably the oldest and probably the longestserving bank in the world.
Blaize Pengilly 09:25
I know my bank of Mom and Dad has been veryreliable throughout my lifetime. So yeah, it doesn't surprise me that it's beenaround for a long time. But you mentioned Xinga before. So for those who arelistening and don't know, it seems curious. Could you give us a little rundownon that, please do?
Tim Dean 09:39
Well, yeah, so the last couple of years,there's been a bunch of what are called Neo banks that have come up in inAustralia around the world. And it's been quite interesting how sort offintechs always strive to sort of package services in a way of capturing anaudience and xinja alongside some fairly large organizations such as revolutein the UK, styling in the UK, and over here, you've got up sort of set out on ajourney to sort of challenge the Big Four and Australia's big banks. And, youknow, they look at, you know, proved to be a rocky path. They were unable tosort of consummate their business model. And I mean, consider this, they had toreturn half a billion dollars worth of savings to their depositors. I mean,that's a that's a, that's a big fail. So it's an interesting sort of segue thatthe technology jumps in. And I think the pathway for for the neobanks is, isone of collaboration. And I think these new Tech's have to kind of come to theparty and work with the banking environment, not you know, it's not always coolto go, Yeah, well, we're different. We're, you know, we're disruptive, and allthose lovely, funky buzzwords that everyone drops out, especially when you'redoing a capital raise. And in fact, today 86:400 merged or got acquired by and,you know, which you mentioned, is, is part of part of Bendigo. So, you know, Ithink I think what we're seeing is, is, you know, collaboration between old newfintechs and established banks, and I think that's probably the way forward. Imean, it's been, it's been telegraphed for a while, and it's a good thing. Imean, you know, if you're, if you're a customer, you know, that Bendigo aregoing to be around if you're in 86:400 customer, you know, that now is going tobe around so you're in safe hands.
Dan Jovevski 11:31
Excellent. Tim, it just goes to show that it'sgood for people to go have a crack and see if they can make consumers lifebetter off. But going back to the bank of Mom and Dad, I mean, it sounds prettygood. You know, there's no credit checks, you can ask them for money. And, youknow, hopefully, they that if they say no, on the first five times, or sixtimes, they might they might sort of say yes, it sounds like a pretty magicalbank. Just talk us through what is relationship lending? And maybe, how does theBank of mom or dad even extend past that to maybe friends and family members,and have the different from say, peer to peer lending?
Tim Dean 12:06
Yeah, look, that's a, that's a, that's aninteresting one. In fact, you know, as a purist, I'd probably say that the bankof Mom, dad is peer to peer lending, you know, definition person to person,again, market is hijacked, peer to peer and, and use that to describe society,one ratesetter, which, interestingly enough, was again, recently sold in theUK, and rebranded in Australia. And the, the peer to peer business is reallyalmost like a mimic of a relationship with the transactions actually done basedon pretty pretty normal banking principles, credit checking, etc, etc. Whereaspure relationship lending, ie the Bank of Mom and dad is where quite simply thethe deal, the loan, the financial support, the transaction for whatever wordyou want to call it, is based on the relationship is based on one person,fundamentally wanting to help someone else out financially. And their decisionto do it is based on the relationship either on an expectation of being repaidon an expectation of good character, in regard that transaction and theexpectation that I'm going to be in your life for the next 20 years, you know,we're related, at some stages, it's going to good, I'm going to bump into youtomorrow, I know your kid, you know, my kids, etc, etc. So you've completelytaken out that credit decision from the process and you're inserting, you know,it's a bit of an emotional connection there. And you're saying, look, I want tohelp this person out. And and the reason why this is all engineering isbecause, you know, traditional credit decisioning is, you know, is a databasescience, you know, you have a credit score, and it can either be a score from abureau visa, or Dun and Bradstreet or it can be based on your Facebook profile,and the people you connect with, and, you know, they have good character, butthe end of the day, oh, and it's a binary decision. And you might have peoplethat don't have a good credit score, and you know, they're cut out have accessto finance from help. So you know, enter someone who wants to help them. That'swhere a relationship loan takes place. And that's, that's the ubiquitous Bank ofMom, dad. It gives people access to credit.
Blaize Pengilly 14:27
You know, you mentioned credit and credit is aplatform that helps manage relationship lending. What exactly is it and howdoes it work?
Tim Dean 14:35
Credi is a cloud based platform that allowsparties to set up go create sign off, manage the end to end process of theirlending between them. So you can set up a loan with a party, you can request aloan from a party, and everything is taken care of in a cloud based platformaccessible from your laptop from your phone. So once the loan is in place, italso matters Is the repayment management reminders allows you to renegotiate aloan, if it needs to be topped up allows you to forgive a loan, if that's thecase, it allows repayment holidays and, and variations to take place. Soeverything that happens in lending between two people, all of those sort ofvariables on journeys take take taken care of, in a platform.
Blaize Pengilly 15:25
Tim, you mentioned that, you know, relationshiplending is someone wanting to help the other person, I guess, point out thatit's always, not always willingly I know many times I've called up my dad, andit's been a very reluctant agreement to help. And then at the second, I borrowmoney, it's right in the front of his diary, and he writes it down, and he willnot erase it until that money has been returned, usually with the interest of acarton of beer. So not always willingly Lent. But yes, we're willing to help iteventually, which is nice.
Tim Dean 15:55
Well look at, look, I've got this aninteresting one. And, you know, when I started the journey with building theCredi platform, that's now got a few 100 million dollars worth of loans on it,you know, I built it for my I built it for myself, actually, because I used toget my son ring me up. And I've just told the story 1000s of times, you know, Iget the phone call from Josh. And, and literally the longer the pause betweenthe Hi dad, and the next. I actually is the riding scale on a on a loan transaction,I could actually, work out how much he was going to ask me for and this is one,you know, a lot of trouble. And, and those transactions were awful. They werejust brutal. I mean, you know, in because he didn't want to pay me back or hethought I've laid him off. And people when they're lending to other people,they would assume that the person that they're borrowing from has got moremoney than them or critically, that that loan is convenient at that point intime. I mean, you might be in a $3 million house, but you may have only $5,000in your bank account, because you just paid for a kitchen extension. Right. Soyou know, ywhen your song rings you up and asked him for 20 grand because heneeds to cash injection into his business might not be appropriate at thatpoint in time. And so when you're faced with, and by the way, is what happenedrecently. So that's a true story. So So the good news by what we did at credibill, this is what what I wanted to do is I wanted to take it offline so thatyou can ask the question, right, so just plays back to your story. If you youknow, you bring your parents up and ask them for some money, you know, you'regonna have the pause, you're gonna have the chance, and you're gonna have thelook how do I say, Yes, hello, say no, how do I say maybe? How do I say?Whatever. So but if you could just stick it on a platform and just send them aloan request, right? They can. They can say, just want to click of a button andsay, yeah, I'm not, I'm just can't do it at the moment. And you just haven'tbroken anything in a relationship, right? You haven't caused any stress andfriction. I mean, how many times you've been down the pub with someone, andafter about the fifth beer, they turn around and say, Look, I'm short for acouple of grand to support me some money and you think I wasn't here for thebeer, I asked you for the loan request. I mean, gonna tell you from my personalexperience, is my lending to my kids has become fantastic. In fact, here's thething. My lovely eldest son was useless. I mean, nothing ever got paid back ontime. But since the since we had a platform that took it online. He's beenbrilliant. Like, because I don't bring him up and have our compensation.damaged by me going, oh, by the way, you know, that $1,000 that was due backthis weekend, you know, are you gonna send it? Well, that starts an argumentyou Dad, you mean, I'm not good for it? You know, come on, you know, you'vealways never trusted me. And you think you've just asked a question, right?With a platform, an email reminder goes out, and it just happens. In fact,you'll turn around and say, oh, by the way, I'm good for that. Just like, youknow, the whole rhythm of the loan. And I kid you not true story. So fromtaking a son that was, you know, just pretty bumpy around with any sort ofshort term loans to being so fantastic. The loans actually went and offered tolend him money. So I actually went to him and said, Hey, you know, I've justnoticed you've got a maxed out credit card. I'd like to pay off the credit cardfor you because you paid 22% interest, you know, it's expensive, you know, myinterest rates about 1%. And that's only because the probability to this, sotell you what I want you to $4,000 and, and I wrote a special condition, I thinkwith a Credi loan offer data like the lender before $1,000 at 1%, over ninemonths, or two years, and I said the only condition I have on it is if I findout that you've maxed out that credit card, then The next loan won't be a yes.And I think, you know, the guy has got a $4,000 credit card in Australia, he'sgoing back years and cancel the card. And he's got it what it should be in hisback pocket as reserve as a parachute. Right? So I got us, I got us throughsystematizing, this financial education, and he would never have let me havethat conversation with him about telling him that it was not a good idea tohave a maxed out credit card. So through the trust, we built through managingour transactions better, I actually was able to re enter his life as a bit of afinancial mentor, as a parent to a child to say, look, it's not good to have amaxed out credit card blardy-blar. So it was it was it was built with apurpose. And the personal outcomes, in terms of financial education have beenamazing, actually, Real pleasure.
Blaize Pengilly 20:48
You've gone from the nagging parent to thetrusted financial advisor. With thanks to the platform.
Tim Dean 20:56
Absolutely. I have hundreds of stories fromfrom our customer base. And you know, I had a story the other day where someonelinked in some way, the old school way, you know, it was a phone call and aloan was given no documentation, no management, no rhythm, no repayment, noagreement, right? And does it mean look, I couldn't pay my dad back. And I didn't.I didn't talk to him for about six months, and eventually caught up with hisdad. And his dad said, Look, I know you haven't talked to me for six months,because you haven't been able to pay me back the money you owe me. You saidlook, other than give it I didn't give a rat's about being paid back. But guesswhat happened? I didn't get the money. I didn't get to see you. And I didn'tget to see my grandchild. So punished in every way, and I've done nothingwrong. So you know, those those holes, it happens all the time. Because here'sthe thing, right? With relationship learning. People don't not pay people backbecause they're crooked, or they're deceitful. Something changes in their life,you know, sh1t happens, right? You know, and they they get into a pickle, andthen they just go, I don't really want to talk about it. And so they bury theirhead in the sand and all things exacerbates. Whereas, you know, again, ifyou've got a piece of tech, you just click the button. And hey, do you thinkyou could let me off for a couple months, and everyone sweet. Parents don'treally care that they don't get the money back on time. They just don't want tobe running around. And the last thing they want to do is have to, as you said,Nag, and will chase the money.
Dan Jovevski 22:35
Tim, that's absolutely incredible. And it justreminds me the origin story of you mentioned credit scores and the creditbureau. And the history of credit score's, is that the exact same story thatyou described about the bank of mum dad and formalizing that process is whathappened with with credit bureaus. Originally, it was modern day credit bureauswere founded in the most unlikely of locations of pharmacy, where a pharmacistwas lending out his suppliers on credit terms. And he was keeping a blackboardof who repaid him on time who was late. And that ended up becoming the FairIsaac institution, which spawned off the modern day credit bureau. So it's sointeresting that these things that happen in our life with borrowing money fromloved ones, is some of the problems that we see the major, major credit marketsthat have that have come to be your word systemized. Tim, for the folks thatare listening, you know, we have to just put this into perspective. I mean, howbig is the mom and dad compared to say, the big four banks? I mean, from what Ihear, it's a pretty big part of the way that people manage money and thefinancial affairs. Maybe you got a number for us.
Tim Dean 23:47
Oh, I've got several numbers. You know, overthe years, it's been trotted out as the fifth largest bank in Australia, thereyou go. $5 million, get Lent, every six months. It's the second largest form ofcredit in America behind credit cards, mortgages. So it's huge. It's huge. I'llperhaps a more interesting segue. Consider this one. This was a lovelystatistic that came out from CNBC a few years ago. And this describe why theBank of mum and dad exists. And that is this. We're all living longer, right.COVID COVID allowing will are living longer. And so what happens is that youget to the stage where 2030 years ago, you parents if they had any money or anyfinancial behest, you know, would be sort of shuffling off this mortal coil,you know, the age of 55. Right, but you know, you know, you know, 60 is the new50 is the old 40 is the old 30. Right, and people are expecting to work intotheir 70s. In fact, for health reasons they're expected to work into the 70s isa good thing, right? So CNBC offered something Like $30 trillion is going tomove in life between generations. You go. So, so in my movement of money,dwarfs anything else really. And it We do it all the time. Now, of course, whydo you then have to systematize it? Well, because you might have multiplechildren, you might have a kid that, and I have this in my case, my kid needsall the help. And so as Blaizes your father, did he, you create a ledger forwant of a better word. So the money movement in between generations is is abehemoth of money. And it moves at various stages. So you can see the lifecycle,though, you know, in the early 20s, is probably to help get a car and you can'tget credit. In the sort of mid 20s. I'd imagine it's more about debtconsolidation. It's about paying off credit cards and, you know, racked up bynow pay later commitments, which I'd like to have a chat about later on,because that's my favorite one. And then in 30 years, it's probably a financialsupport with schooling. I know that in the private school system, and some ofthe big, big private schools in Perth, scotch, and hail, you know, upwards of60% of school fees are paid by grandparents, go figure, right. So that thefinancial commitments then of course, you get into late 30s. And it might bethe the classic one, which is always trotted out, which is the Bank of mum anddad helps you get on the property ladder, because millennials can save 50 grandor 60 grand or 20 grand for the for the property ladder, which it kind of is abit of a problem with the two speed economy. But then you can see where it'sgoing. So the Bank of mum and dad transactional type is fluid and variedaccording to the lifecycle of the parties within that. So it goes fromsomething as simple as getting a first car or motorbike to getting them on theproperty ladder or doing their innovation or paying school fees. And that thatflow is controlled, it's either, you know, does a gift or it's done as a loanor was done as a combination, it might be paid back in part, I mean, that's aconsideration you might have, that a parents may actually lend money to 30 to40 something year old when they need it. So they don't get high cost credit.Because the banker My dad has usually as the average transactional performsabout 1% 2%. Now, four years ago, we started, the natural cost of capital ratewas six or 7%. So is a massive delta between those two. Now with these of theeconomic conditions in the mortgage rate of 1.9%. out there, it's not quitedifferent, but it will bounce back. So the bank loan debt is such a goodtransaction and you're not paying interest. You're paying, you're payinginterest. Ah, So parents may turn on the low balling you 100 grand now, but Iwant it when I'm retired and when I need it, when you've sorted out Your Life.There's an interesting number there. By the way, I should have told you this.So when I am when I did my transaction with Josh on the credit card, right?What prompted me to do that I should have said it's time to is that I looked atstage page two on the credit credit card. And as by law, they have to actuallystate and please your listeners, if you've got a credit card, just don't lookat page two, because by law, it has to tell you that if you make the minimumrepayment, what is your trajectory in terms of years, and what is the amountthat you'll have to pay back. And he had a card with CMB. And he's $4,000 card,if you just pay the minimum each month, he was up for a total of $17,000 ininterest, and 47 years to repay.
Blaize Pengilly 28:55
Oh my god.
Tim Dean 28:58
So good old dad weighed in at an interest rateof 1%. And the interest was about $100 and I got him out of the transaction infour years. So our family's wealth, by me actually jumping in and taking themout of that credit, save him 17 years of being on the hook and sort of stood upfor 40 years 30 years and saved our family $17,000 with the interest that wouldhave gone outside the family. So you know back to back to hard numbers here.When you're dealing with high cost credit with some credit cards can be byswapping out with a loan from your parents that actually is purely repaymentand often you'll get in as I find with my kids, if they make 60% of therepayments on time alone off the rest right because they kind of they they'vedone what they wanted to do. Then the family wealth you just it's not it's an efficientuse of capital and and a lot of parents are absolutely on that. I Had a letterfrom the panelists saying hi to him on his credit, I'm lending my kid $300,000to assure shit and not going to put 9% or 8% interest rate into the pocket ofthe CTO of ainz. It, this guy was really bent out of shape about it, he said,I'm going to lend it at 2% or 1%. And this was when interest rates are higher,and fight, they were making financial decisions, because they didn't want tohave that sort of financial friction and, and preserve money within the family.So it's a real hot, big number. I mean, you know, if you're paying 22%interest, and you're just paying back the credit card, just on the minimum eachmonth, which most people do, let's be candid, 14% of credit cards, only a paypay back the minimum, then that's a that's just financial inefficiency, youknow, times ten.
Blaize Pengilly 30:51
I love that it's creating an opportunity forYeah, the the money to stay more so within the family, then then building thosepockets of the CEOs. Tim, what are the do's and don'ts of family lending? Whatare the things to look out for?
Tim Dean 31:06
I'll give a couple of good ones from a parent'spoint of view. You know, do what you say you're going to do. If you're going tolend the money and lend the money. If you're not going to do it, then don'tjust say yes or no, don't be vague. Be clear in your communications, or give anexample, you meet me to pay you back and make brings you up and says, hey,look, I'm struggling bit, you know, can you give me a bit of slack? And youturn around and your language says, Look, I'm cool about all that. Just getback to me? Yeah, pick it up when you can, right. Pick it up. I'm okay, I'mgood. Right? Now, the one person heard. I don't have to pay this guy backanything in school, I'm okay. And the other person heard. I'm just going to nothave this monthly monthly payment. And in that you just did a world war three.In the future when someone's sitting there three months down going mile free,man. How do I ask? Also, don't assume that people can afford it. And don'tassume that just because they can lend you the money that they don't need themoney back? You know that because a lot of instances people have actually takenmoney down from a savings account, or they've broken a trust account somewhere.They've done that to help out and they probably need that to balance thetransaction. So so you know, and then the classic one is right down, right. Imean, and that's obviously where credit comes in, have a document. Yeah. Soeveryone knows where they stand? Because there was there was a court case aboutfour years ago in Brisbane, where a, obviously, a family breakup had happened.And the judge ruled against a family that their son was not bound to pay backquarter million dollars that he borrowed from his parents. Because he said, andin the absence of any documentation, the judge could rule the country. He saidit was a gift. And they were absolutely sure that it was alone. And the courtsaid, Well, we can't call this way. So that's it. So there's the problem. Andit's interesting, it says, I've got an interesting story, actually, thatrelates to that. A friend of mine did exactly that. They they borrowed somemoney as a couple from their parents. And, and then they split up, right, theyborrowed money to get on the property ladder. And of course, as soon as theysplit up, circumstances have changed. And then we had a bit of a bum fightabout it. And so so the partner turned around and said, Well, it was a gift. Soknock yourself out, we'll sell the property. And I have 50% of that gift as itwere right. And the parents, I know, they were like going, like, it was a loan.We said it was alone, US alone. How can you be so deceitful what that pickedup? So there was no sort of obligation to have any relationship moving forward.But then it also got them to question would you say was it? Maybe wemisrepresented it, maybe it's asked, you know, you question your own sanityanyway, as it happened, they were rummaging in this drawer one day, and theyfound a little handwritten note. It was on like a card that's been written twodays later. And it said, Hi, Bob, and Jane, from the partner, just want to dropyou a note, say thanks very much for lending us 30. And they've still beenthere you go. And of course, then it unraveled when the transaction happened.And lo not a gift. But it was just that that little piece of paper that wasenough to head off the problem. So in the absence of any documentation, peoplewill just read it whichever way they want. Not necessarily at the time, but afuture date. So the biggest number one is just get it documented. And, youknow, and conducted well, because here's the thing, right? If you if you payyour parents back and I'm for this, if you pay your parents back on time, youknow what they're probably lending more money. Next time. You You build up thatkind of credit score as it were with your folks. And, and, you know,millennials, you know, are going to need more and more money, you know, movingdown the track, I mean, the, the credit crunch that is going to, happen in thenext year or so, as job Keeper comes off is going to be huge, and it's gonna beserious and the bank, remember that is gonna have a big part to play in solvingthis, this problem, I keep in touch with a bunch of industry operators. And,you know, my, my, my people are telling me that they are stealing bankstatements that are littered with buy now pay later transactions that you willhave that five years ago, you used to see what 10 years ago used to see peoplestart to have one or 234 credit cards right angry back, then you used to see atthe lower income levels, people used to have multiple payday loans, you know,blah, blah, blah, that used to happen. And the government came in and sortedthat out with some pretty strong and much needed laws. Well, the same ishappening now you're seeing bank statements that have got five or six, buy nowpay later transactions on the same transaction. So you've got you know, you'vegot zip, you've got, you got what you just keep going right. And so whensomeone is literally just just layering up all his desk, you know, it's debt,and anyone who tries to say that a buy now pay later obligations, not debt, itis a debt, right just might not carry an interest rate. Well, when the chickenscome home to roost, that's going to have to be paid back. And I think whatwe'll see is the bank of mum and dad will do what it's always done, it'll stepin, and it'll just consolidate those loans, and the lender will be written off,and we'll move forward and hopefully, some financial education will happen inthe process. So we're in a, we're in a pretty, really pretty fragileenvironment. Because the buy now pay later marketplace is not regulated, in thesense of operates under an exemption and Responsible Lending obligations thatnormally would apply for credit cards don't apply or not forced to apply. Ithink the government will change, I think it has to change that because peopleare just absorbing debt, like you would not believe. And there's going to comea point where they'll have to, they won't be able to pay anything back into thebank among debt. One thing I'll say is we told you so.
Dan Jovevski 37:24
Tim,who is the Bank of mom and dad's biggestcompetitor. And a lot of people turn to the bank, Mom and Dad instead ofservices like after pay and traditional lending.
Tim Dean 37:34
It's, it's a really good question, actually, Ithink people turn to the bank of mom or dad, because either they're stuck, theycan't get credit from elsewhere. And traditional credit providers in whateverway you form it a commercial operation operators and they have to chargeinterest for it. So there's a point where the credit burden is just needssolving. And I think that's, that's the parachute environment, that that you'llhave there. But then you've got the issue where the bank among that carriestransactions that normally is, is not undertaken by other credit providers, andclassic one is getting a deposit to get on a house. I mean, as Australians, welove property, we love getting into the property loop. And we have this thisthis faith and reliance in in a property environment that will be a capturepoint for most people that the biggest financial transaction will ever make intheir lives. And the saving money for a deposit is harder, right? You know, Imean, return, inflation has been almost negligent in Australia wage increaseshave been absolutely non existent. So and the the cost of living, the real costof living has definitely been going up. So there's no chance that most ofanimals can actually get the money together for a deposit on the house. So inthat regard, I think there is no competition, because it's providing, as I saidearlier, is that wealth transfer, I'll give you the money now. So you can geton the property ladder to have the same property price appreciation that I hadin my life. So I don't I don't think there's much competition there. And also,it comes in so many wide and varied forms. So to some extent it crosses allthose barriers, really. I don't think I don't think there's huge amount ofcompetition, but we've had instances where people have tried to create sort ofloan clubs where you will put money into a pot. Not a big fan of those because,you know, you end up having 20 people lending some money if it goes wrong,you've just upset 20 people. You just got a bigger problem, right? I think it'sjust better have a binary decision with your family members. But But you know,And evidence, as it says is that something like 70% of first time buyersrequire family support to get on the property ladder. And some of that 30% ofsecond time buyers actually go back to them thanking Mom, dad for for help outof that stage too. So I think in the property space, I think that's huge. Theother space we see a lot is small businesses, or 97% of Australians with smallbusinesses leave or not. and small businesses, by their nature are almostunfindable. We all know that right? You know, you have no track record. And alot of the stake holding the stakes, those businesses are provided by Friendsand family, maybe you've worked with in the past. I mean, so massive successes,hungry, Jack's Jack Cowin, you know, $300 million $400 million, you know,financial success story? Well, let's start off on six loans to six mates for 20grand each. And that was it, I didn't want to become shareholders, so hungryJacks, would not have been a success. It was and there's story after storyafter story where that happens. So small business definitely is a is a massivepoint of action. And in that regard, again, if you look at the Small Businesslenders, people want judo. And then you've got all sorts of the FinTechlenders, such as prosper, lovely interest rates about 28%. You know, theydidn't start lending to small businesses beginning for 12 months. So what doyou do in the first 12 months, so And by the way, just let you know how bigthat is. There are 25,000 new ABS created each month in Australia, which is newfor business. And it's generally about 50%, higher during a point of friction.So that happened in the GFC. That grew by 50%. And this happened during COVID.They called survivor entrepreneurs, accidental entrepreneurs, either, I don'tknow, and I don't want to go back to work and entrepreneurs. You know, you getstarted in you need to have a deposit on this and you get a webpage bills, youneed to do this and the other and guess what, you know, you know, the Bank ofmum or dad is going to pony up the money and get you going just because youknow, we want to help and we want to you get you don't and I have done thatagain, with my kids, you know, when they start out. In business, I'll give thema bit of a help. And so there's not a big amount of money, it's just, they justcan't get the cash elsewhere. And the worst thing you've asked me woman to dois go and take high cost credit. I mean, if you've got a small business andyou're pouring money from a FinTech lender, 25 to 30% per annum payday lendingfor business, I mean, you're never gonna get out of that trap. So we have avariety of use cases that are a successful,
Dan Jovevski 42:48
Tim, you have probably inspired the parentslistening to this podcast now to get their own affairs in order with theirchildren. Learn more about how they can get the most out of their relationshipswith their kids and help them out as well, as you've just talked about,including the wealth transfer between families, which I think is probably oneof the most interesting things you mentioned today's podcast that I certainlydidn't think about. As you were running through examples. Tim, it has been anabsolute pleasure to have you on the show. How can people will more about youand Credi?
Tim Dean 43:20
Easy just visit credi.com That's credi, itscredit without the T, credit without the trouble. Yeah, I had to get out whenin! I think we found that out a bit later. So go to credi.com.
Blaize Pengilly 43:34
Awesome. Well, Tim, thank you so much forjoining us. It was lovely to chat to you and learn all about relationshiplending. I had no idea where I had relationship lending to thank for theWhopper. So very much appreciate you joining us and hope to have you on thepodcast again in the future.
Tim Dean 43:50
Anytime. I'm always available to come and talkabout my favorite subject. Thanks, Tim.
Blaize Pengilly 44:01
What did you learn from our chat with Tim?
Dan Jovevski 44:04
I had absolutely no idea the size and the depthand breadth of Australia's fifth largest bank and the bank of mum and dad. Lookfor anything that really stood out from from Tim's conversation was the factthat when we talk about inter family wealth transfer, so giving your kids allloans, for example, you're keeping wealth within the family. And that's reallya concept that I completely, utterly missed. And I think that's what reallystood out to me as the important point for Tim to to really come to bring ithome. But I think the other interesting thing was that it is it's very prevalent,and the way that Tim's going about systemising the whole process todestigmatize it for other people so they can access money from family is reallyinteresting because, you know, let's face it, there's no one else really doingit. So I think it's really about you because
Blaize Pengilly 44:57
I found it really interesting when he Tell thestory of someone that had borrowed money, their son had borrowed money fromthem. And then because the son hadn't paid it back, leave it all good or bad ator whatever reason, he didn't speak to him, his dad for six months, and thenhis dad didn't get to see the grandkids and that the knock on effects by nothaving a proper plan in place and not having isn't using a service like credit,he impacted their relationship, which I thought, you know, like, finances canbe tricky to talk about, which is, you know, why we love talking about them onthe podcast to, to break down that taboo, but it was just really nice to seethe human side of relationship lending and that if, you know, if you approachit the right way, and you do have those safe boundaries in place, then it meansthat you can have the best advice worlds and you know, borrow money and stillget to see your family and not damage those relationships. So I thought thatwas really special.
Dan Jovevski 45:56
The other part,
Blaize Pengilly 45:56
why are you laughing?
Dan Jovevski 45:59
is just when I mentioned that he could have hecould he could recall the size of the borrowing request by the pause it is somebefore he asked him for money. I could just imagine a little slider thoselittle sliders that you get on the loan starts going up when the pause andother sort of a bi exact same situation me and my mom, just you can tell themicro expressions on her face, she knew what was coming.
Blaize Pengilly 46:27
My favorite way to do it is to do somethingnice or do a chore that's not expected. And then go in with the Oh, my favoritedaughter. I am the only daughter and I'm the only child in this country. So Ido take precedence. And yeah, that's my favorite way to slide over and ask formoney. But like I said in the intro, I'm a recovering spendaholic, sohopefully, I haven't had to borrow money in a while. Hopefully it will remainthat way. We shall see.
Blaize Pengilly 47:02
As you probably aware, there we talk sensepodcast is sponsored by and produced by wemoney. Now we money is a financialwellness app, then what is there's so many different elements to the wemoneyapp, tell me your favorite feature, please,
Dan Jovevski 47:19
I really love the networth feature. So for me,it's really important to understand where I'm at holistically, but also to geta sense about where my finances are at. And what's my overall picture. So whereis my assets, where is my liabilities, because it can change, it can fluctuatefrom week to week, but I really like seeing that, you know, grow over time,particularly seeing all my investment accounts together in one place. I'mseeing my repayments on wire mortgages go down as well as just veryencouraging. So that's my favorite feature. How about yours?
Blaize Pengilly 47:48
Oh, finance feature, their net worth feature isa little bit disheartening for me sometimes, but it is really good seeing afull picture. What I like about the app is that you can see all I have fordifferent - I bank with 4 different banks, I can see all four of the is in myone in the one place. So I don't have to keep opening multiple different appsand checking across to see how I'm doing with my savings and how I'm hitting myfinancial goals, I don't have to do that. I can literally open one app and seeevery bank account that I have in one place. So as well as the single the banksin one place. And the networth feature, there are heaps of other features inthe wemoney app, it is a free app. And we would love if you could check it out.We actually have a referral code. So if you use the referral code on sign up,you'll get $5. And we will plant a tree to celebrate. So the referral code isPODCAST. And you can download the app in the apple play or the iTunes storesfor free.
Blaize Pengilly 48:51
Dan who makes the government's acronyms becausethey love an acronym. If there's anything I've learned on this podcast, theylove an acronym and they love naming things. Who does it?
Dan Jovevski 49:03
Come on Blaize Haven't you heard it before?It's the CAO?
Blaize Pengilly 49:07
What what's the CAO?
Dan Jovevski 49:09
The chief acronym office
Blaize Pengilly 49:13
Dan you are definitely
Dan Jovevski 49:22
on alook at some confusing isn't it every time you hear about something, and italways changes all the time over a couple of years. So what meant something oneday to change the next I often often was myself. So I like to read the acronymand then just try to find out what it means. But yeah, there is a lot ofconfusion in the space.
Blaize Pengilly 49:39
Well, today we are talking about Actually, youknow what, I think I figured out how they do it. They just get alphabet soup,put a spoon in, pick up a bunch of letters like him and then what's themeaning. So, today we are talking about the FHSS or as I like to call it the fff shh So fhss, which is the First Home Super Saver scheme. So today's episodewe're looking at super and homeownership. But before we get into this, ifyou've got any questions about super, you can listen back to Episode Six, wherewe have a chat to Helen Hodgson, who talks about super how it's changed and whyit's important. And then if you're looking at buying a first home, and you wantto know what other benefits and discounts and entitlements you're you couldpotentially get and Episode Three, we look at the first home loan depositscheme, which is not to be confused with Episode Four, the first home buyersgrant. So there's a lot of programs in place to assist first home buyers. ButDan, tell me, what exactly is the FirstHome Super Saver scheme?
Dan Jovevski 50:50
Well Blaize the first time Super Saver schemewas introduced by the Australian Government in the federal budget in 2017, and18. And this was to reduce the pressure on housing affordability. Effectively,the scheme allows you to save money on your first time inside your super fund.And this will help first time buyers so faster, with a concessional tax treatmentof superannuation and also big word that that's what that's what the scheme isin a nutshell.
Blaize Pengilly 51:16
Okay, so saving, essentially, using your superas a savings account. It sounds like, how does that actually work?
Dan Jovevski 51:24
The scheme, in a nutshell basically allows youto make voluntary contributions, either before tax or after tax into your superfund to save for your first time, you can apply for a maximum of $15,000 foryour voluntary contributions, and one financial year and up to $30,000 overthree years.
Blaize Pengilly 51:46
Okay, so the total amount that you are able to save using the first time super savers game, Wow, that is a tongue twister,First home savers green screen game, I have a $30,000
Dan Jovevski 51:57
You can contribute $15,000 in one year and atotal of $30,000 over a period of three years when calculating your eligiblecontribution. So basically allows you to put in quite a bit of money towardssuper font. And there's some tax concessions, which we'll get into a little bitto showcase the benefits, but it's a great way of saving for your first homedeposit with the assistance of the government
Blaize Pengilly 52:22
So this is like a super, it's a fast, safe wayto save money inside your super fund that you can use towards your deposit ortowards your home.
Dan Jovevski 52:33
Yes, that's correct. So plays with a medianproperty price being about 550 grand, you think about the maximum limit thatyou can make a contribution to which is about 30 grand to do the mental mathvery quickly. It's roughly about a 5% deposit for that average property priceof 500 grand, which is still in Lenders Mortgage Insurance territory, but it'sthe most minimum requirement that most lenders have when you buy a first property.So you can potentially accelerate your way into homeownership by using the helpof the government to help you save quicker and faster meet the minimum criteriato purchase a house which I think is really cool.
Blaize Pengilly 53:09
Yeah, awesome. And if you do have the 5%deposit, you have to pay LMI. There is I mean, if they're still running theprogram, if you want to use it, they have the first home loan deposit scheme,which we spoke about in an earlier episode where the government acts as yourguarantor. So you don't actually have to pay LMI. So if you do, and they havethe 5%, I'm guessing that could work out really well for you,
It's raining cash
That's the dream. Now with everything with theAustralian Government, I'm sure there's some sort of eligibility requirements.Who is eligible, who can use it?
Dan Jovevski 53:46
Devils in the detail, but I think these conditions are fairly straightforward. So to be eligible for the scheme, you have to live in the premises that you're buying or intend to as soon as practicable.You intend to live the property for at least six months within the first 12 months or years after, after it's practical to move in, and you must be over the age of 18. So it really I mean, it's fairly open criteria to be eligible.
Blaize Pengilly 54:12
Okay, so that sounds pretty that doesn't, that doesn't send us out because I as I thought it would be. And now I know what thefirst home lend deposit scheme and the first home buyer scheme, you're only entitled to those benefits once. So say if I, if I bought a house with someone else, and they hadn't bought a house before would only be entitled to the benefit once between the two of us. You can both claim it. Is that the samecase for the FHSS
Dan Jovevski 54:40
One pf the best things about this game is thatit's at the individual level. So that means you've got a partner you're lookingat buying a property together, you can both save together individually towardsthe scheme and both get the taxation benefit if you made the eligibilitycriteria, which is absolutely great. I mean this is really compounding the potential benefit. Which basically means that if you are buying that propertyand in the example that we use before, then your opposite deposit for like,say, an individual, if you teamed up with your partner, you could potentially make that into a 10% deposit or $60,000 worth of benefits. So that's really,really good. And if one of you have previously owned a home, it wants to stopthe other person from applying, which is really good. It basically means thatit's not excluding people that may have gone through situations where theirlife circumstances have changed with the relationship and still kind of benefit, which is awesome. And the other benefit of the scheme, which is reallyfair, I've got to admit from the government, is that there are some circumstances where you're still eligible, if you have previously owned aproperty in Australia, and this is under a financial hardship provision.
Blaize Pengilly 55:47
Oh, that sounds really nice. What what what doyou mean by financial hardship? Like what types of events? Do you have to what what classifies as financial hardship for you to be eligible to reuse thisscheme, we'll use this game for the first time. If you've already owned ahouse?
Dan Jovevski 56:00
Sometimes people go through some pretty harrowing experiences when it comes to their finances. And some of those examples will be going through bankruptcy, divorce, separation from a de facto partner. Relationship breakdown, loss of employment illness, also being affected by a natural disaster. So you can apply financial hardship directl online through myGov. And I think this is really cool, because let's face it,we all come across some type of hardship across our lives. And I'm really happyto say the government is actually focused on amending the rules to cover these cases, which in previous games, they hadn't really done so. And we think about natural disasters, the bushfires over East the bushfires here locally in Perth recently, and there's heaps of people that go through the situation. So I'm really pleased that these have been included.
Blaize Pengilly 56:48
Yeah, it sounds really nice. It sounds like this game is the most accessible of all the first time supports that the government is offering at the moment, then I'm sure, this comes with a lot ofstrict conditions or red tape, as as most things, what are the main ones?
Dan Jovevski 57:07
You need to request the release of your first time super saver amounts around the same time you start your home buying activities. So for example, when you're applying for your home loan, the homethat you purchase, or construct also must be located in Australia. So sad news there for expat friends that want to build that hut out in Borneo. You can also request a release under the first time super service game once. So this is only you've only got one chance to go and do the release. And you can't change your mind and sort of do at a later point. If your release request is cancelled, you will not be able to apply again in the future, which is pretty that's a pretty harsh one actually. If you want to understand more details about the verse Terms of Service scheme, just head to ato.gov.au to get the full list of the conditions and red tape you might come.
Blaize Pengilly 58:05
Well, one shot one opportunity once in a lifetime. If you miss it or you know you make a mistake. You can apply again unless hot financial hardship perhaps so don't mess up.
Dan Jovevski 58:19
Just thought about the Eminiem, lose yourself somewhere for some reason.
Blaize Pengilly 58:23
I really remember.
Dan Jovevski 58:25
You've already got one shot that was quite
Blaize Pengilly 58:35
Good on you, Dan. I'm glad you're the one with he finance expert. Also I'll stick to the be the one quoting from songs.
Dan Jovevski 58:42
I'm keeping up I'm kidding. My dad, my dad jokes. Yes, this keep you on your toes Blaize.
Blaize Pengilly 58:48
All right, Dan back to the First Home Super Saver scheme. When it comes down to it. How do you actually do it? Like do I wave a magic wand and hope that more of my pay goes into my super account? Do I need to talk to someone what like how does it practically work?
Dan Jovevski 59:07
There is a bit of work involved Blaize thefirst step is to enter into a salary sacrifice arrangement with your employer.So to deal with your employer or your HR department saying, look, this is ascam that I want to go for. And I'd like to organize my contributions directly to my super fund in line with the scheme so most employers should be clued upon the scheme what it is what it means to people. So when you get the request,hopefully it's not coming from out of the blue. But if it is, please direct your HR person to the government websites they can get brief that what it is,then of course, you start making your voluntary personal sub superannuation contributions by yourself if you manage your own superannuation fund, which is probably not a lot of people, but if you are in that circumstance, you can do that yourself. And the amount sits there and grows over time and when you're ready to release the funds you need to apply it before First time super service game,if you're approved and good to go, the funds will be released less the tax that you pay, and you've got 12 months to sign a contract for the purchase or the construction of your home. So there is that 12 month window there that peoplewill really need to enact on making that purchase or starting the construction of a home.
Blaize Pengilly 1:00:21
Okay, great. So you're either applying directly through your employer to sacrifice more of your pay directly into super, or you're making contributions yourself, you're letting that grow. When you'reready to, you know, put the pen to paper and and commit and start and buy a house just apply and then the funds will be released minus attacks. So that sounds pretty simple. Once you've saved the money, that means I can you know, head off and buy my house boat or something lovely
Da Jovevski 1:00:53
All I can picture is you wearing some type of Fedora, you know, going up and down the Swan River, you know, sipping some exotic sort of drink or tea basking the glory of life. But unfortunately, youcould do that just not with the first time supers have escaped. So it can't be a houseboat, it can't be a motor home, it can't be Viking land as well. So you can't land squatyou can't buy a home and use IP service game to buy that or any premises that's not capable of being occupied as a resident. So there are some restrictions, there are the type of properties that we will incentivize you to purchase and none of these conditions are unfortunately are eligible.
Blaize Pengilly 1:01:35
You've just shattered some of my dreams, Dan,because since you know first was in lockdown, I was really thinking it would be great if he lived on a house boat because it house by he can literally drive wherever you snorkel dive surf, you'd be living the dream in lockdown all by yourself on your boat.
Dan Jovevski 1:01:56
Totally, one can only hope and I wouldn't I wouldn't put that past you actually, because I'm waiting. I'm waiting to see any any house Park go down this one river, I'll know exactly what it is.
Blaize Pengilly 1:02:08
Me and my Fedora.
Dan Jovevski 1:02:12
So both are awesome things to note. You know,some employers may offer salary sacrifice arrangements to their employees,which could be a limitation, particularly if your employer isn't set up forthat. If you're self employed, you will need to make the voluntarycontributions your self, which could add to an administrative burden, it's notall super funds eligible to have all those contributions. So please do checkthat before you start saving, and checking on those super fund will release themoney and how that process actually works. Ask your friend about any fees and charges insurance applications that also may apply. And also know that the first time super saver will affect your tax for the year when you're asked for the money to be released. So it's something to keep in mind when you do go tothe accountant and let them know about that. And you also can include contributions made by your employer or anyone else on your behalf. So you've really got to make sure that this is coming from you and not your employer.Also, if you're going to apply Be careful the first time super saver request smay be cancelled if you provide incorrect information and you will not be able to apply under the first time super saver scheme in the future. So there are some rules folks and make sure you get across those before you get involved.
Blaize Pengilly 1:03:25
Brutal so really do have that one shot what happens if what happens if I go through the process put all this money away somehow miraculously save 30 grand any in three years, get the money out? And then decide don't want to buy the home or something changes in your circumstance or something happens? Can you just keep that money that you've drawn out? Or you know that's because that could be tax saving? Right? Can you keep the money?
Dan Jovevski 1:03:57
Totally you know one person is tax saving another person is rorting the system.So Blaize, if you don't have a father toor choose to keep the first time Super Saver amount, you may be eligible to paythe first time Super Saver tax rate which is about 20% which will probably move you into the exact same tax care category that you were before so there's there's probably not ways around the system that you can do to make this a you know a cash grab will really boost your savings reduce your tax rate
Blaize Pengilly 1:04:29
Noted no rorting the system for me. Okay, sosay if I start saving, and then before I withdraw the money, I changed my mind and I'm like, ah, actually, I don't want to buy a house. My plans have changed my goals have changed. What happens to the money in my account then can I still kind of take it out?
No. if you change your mind or become ineligible for the scheme once you've already started saving the money is locked away. You said fund until you reach retirement age. So it really there'snot much movement in there, it just basically means you've made some additional voluntary contributions to Superfund, which, you know, let's face it, it could be a plus. But you won't be able to get the benefits of this game if you do itthat way.
Blaize Pengilly 1:05:15
Well, good to know. And so, so this is one way to save for a house. So let's say for I have to pause it. Now, just thinking about other ways that you could potentially save. Why would you do or what would be the pros of doing the first time using the first time Super Saver scheme, instead of doing something like investing in the share market where you could potentially get higher returns on your investment or your savings? Why would you choose something like the first time Super Saver instead?
DanJ ovevski 1:05:45
Well, when you're investing into shares, that means you miss out on the tax benefits of the first time Super Saver scheme might defeat the purpose if you are investing other asset classes, and then you would have to sort of think about right, given the benefits of a tax concession, can I actually make that money outside without really taking a lo tof risk, we know the share market is pretty risky. And you may not get your money back. In fact, you could be losing money. But if just think about the example above, you know, God forbid that you were to, you know, put all your chips into GameStop. and use that as your first home buyers saving fund, or a stock that you've pinned against to want to buy your home. As you can tell,things are pretty risky. So share market might not be the best avenue for savings, or getting your head shares a bit of longer term, if you can write out the changes to the market. But that time horizon may be many, many years. The first time super saver is also a good opportunity for those to say quickly over a period of one to three year period. And it also comes down to your appetite for risk and the timeframe that you want to achieve your goals. So you know,investing in the share market, and may be a long term endeavor, say 10 to 15 years out, I think Warren Buffett had an awesome quote, it's not about timing the market, it's time in market. And if you think about his philosophy, where he holds stocks for literally forever, this may not be conducive to say savingup for your deposit for your home. And if you want another alternative, you canalso consider a 10 deposit or a high interest savings account. But you know,when you really break down the numbers of the math, you know, you're getting what 2% now for a term deposit, and you still have to pay tax on the interest that you earn. So it's a awesome scheme for individuals that really want t oaccelerate their savings to buy first time which is unrivaled by other alternative options,
Blaize Pengilly 1:07:32
Is an awesome scheme. So I'm guessing that your final thoughts are pretty positive on this one then?
Dan Jovevski 1:07:38
absolutely when you think about the evolution of the first time buyer scheme and how it's coming in, it's come come out, this is just a great way for people to incentivize savings, and with the help of the government. And it's a real benefit, because instead of paying tax tax, and you're accelerating your home ownership goals with the help and support of the government, which I think is actually probably more tax effective policy, because it forces you to save it is your own money. And the government is just giving you a discount on their tax. They're foregoing some income, but they're getting the added benefit of potentially creating more homes, more dwellings, more construction activity,which is probably a net positive for the economy. So I think the government's got a right, I'm very supportive.
Blaize Pengilly 1:08:20
It sounds pretty good. The one bit that scares me is that if you put all this money away, and then change your mind or decide not to buy a house, it's kind of it's it, there's no you can't access it. So ifyou do put all this money away, and then suddenly decide you don't want to goin a house, but you want to go on and around the world trip that cost $30,000you say $30,000 you know you cannot access that money. So that's the that's a bit that I hesitate on. But I really I really like Like I said before, it soundslike the government's making it really accessible because multiple people canapply can use this scheme, even if they're buying if they're buying the same house. So yes, it sounds really good sense. Sounds good. First Home Super Saver Scheme. That's a good FHSSnot the best acronym because it does sound like someone trying to shoosh you in a library. But other than that, I'm going togive it four stars for me.
Blaize Pengilly 1:09:17
That's all we have time for today on We Talk Cents. Thank you so much for tuning in. I hope you love learning about thefirst home Super Saver scheme and bank mum and dad. If you like the show,please do us a favor and share this episode with a friend or family member ors omeone you know that's buying their first time and may find this a benefit.
Dan Jovevski 1:09:34
And if you got any feedback on topics that you'd like us to cover, just hit us up on Instagram @getwemoney. And if you want to get a full picture of your financial health, give WeMoney to go. It's free to download and use and you can go directly to the Apple Store or the Google Play Store and download it and better yet, use the referral code podcast you wouldn't get $5 directly from way money. That's enough for us this week.We'll catch you next Monday.
Blaize Pengilly 1:09:56
See you later.
We Talk Cents is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This podcast should not be considered to constitute financial advice. Accordingly, reliance should not be placed on the podcast as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.