This is default featured slide 1 title
This is default featured slide 2 title
This is default featured slide 3 title
This is default featured slide 4 title
This is default featured slide 5 title
 

Monthly Archives: September 2016

Tips to Teaching Your Children about Money

However, a panel of experts at The 2016 Money Expo agreed that this is one of the most important subjects any parent has to manage. Preparing your children for their financial futures is one of the greatest gifts you can give them.

Nikki Taylor from Taylored Financial Solutions said that the earlier parents start on this journey, the easier and more effective the lessons will be.

“For me, it’s about starting them early,” said Taylor. “How do you teach children manners? You don’t wait until they are 15. You start when they are really young.”

Brand manager at Emperor Asset Management, Lungile Msibi, said that even two- and three-year olds can appreciate the lessons of delayed gratification and working towards a goal.

“Start kids when they are young with goal-based savings,” she advised. “If they want a Barbie doll, for instance, show how they can save towards that goal. That’s important because later in life they will understand that you can’t invest if you don’t have a goal.”

As they grow older, you will have therefore prepared them for conversations about investing for the long term. It’s particularly helpful if family members support you.

“When my kids were born I gave their grandparents bank account details for both of them and said instead of filling my house with toys at birthdays and Christmas, please put money in these bank accounts,” said Taylor. “My children still get toys and presents, but they also see the money in their accounts and how it is earning interest. They now get excited at every birthday and Christmas to see who has put money in for them and how much they now have.”

It’s also important to involve your children in how you are saving for their own futures through things like education plans or unit trusts that they will receive later in life.

“I’m saving for different stages of my son’s life and he knows what each of those investments are and what they are for,” said Dineo Tsamela, founder of The Piggie Banker. “He gets excited because he can see what that money means for him – that he will have access to a really great education and that he will have some financial security. He appreciates that money is not just about what it can get you now.”

Msibi said that it’s also important to teach children the impact of the choices they make. She used the example of a child who wanted a new iPhone, but his parents offered him the choice of having them invest that money instead.

“The value of an iPhone in one year or two years diminishes,” said Msibi. “But if your child rather invested that R10 000, it could make a huge financial difference later in life if you give it 40 or 50 years to grow.”

It is also crucial that parents instil a sense of where money comes from.

“You have to teach them the value of work,” said Tsamela. “It’s very important for children to understand that money doesn’t just happen – that there are things you have to do for it to come in.”

Taylor agreed.

“If my kids want anything we negotiate how many stars it will cost, and I then allocate them stars for things like good manners or cleaning a room,” she said. “They ask me why they have to get stars when their friends get things for free, and I explain that mommy has to work for everything she earns, and that’s an important conversation. Because it becomes something they have to work towards, they also have to consider whether it’s worth it or whether there is something else they want more instead.”

Crucially, this is also linked to the values we teach our children. And those values are most often conveyed in how we ourselves treat money.

“What value system do you instil in your children through the way you spend your money?” asked Kristia van Heerden, CEO of Just One Lap. “We should think about how we interact with money and what money can do for us.”

Tsamela added that parents have to think about the lessons they are teaching through how they talk about what money is and why it is important.

“Putting the emphasis on saying that you have to be rich, you have to have money distorts children’s view of how the world works,” she said. “Don’t make money the primary thing. What is primary is fulfilment and that you enjoy your life. Everything else comes afterwards.”

Importantly, parents should consider carefully what they teach their children about what it means to be successful.

“Parents need to teach their children about purpose, resilience, following their dreams and pursuing them relentlessly,” said Nonqaba Stamper from FundBabies. “If they help their children to become the best version of themselves, that is when they contribute to society and make South Africa a better place. When they see themselves as people who can add value, that’s where true success lies.”

Financial Education Delivered

Six months after launching, the highly popular Wealthy Ever After financial education course is moving into the corporate market, having delivered 9 000 hours of content to users.

Co-developed by JSE-listed media group Moneyweb and The Money School,Wealthy Ever After is an online financial education course aimed at empowering people to take control of their finances. Used in conjunction with webinars and on-site education sessions, it forms a part of a powerful education tool.

“This course represents a major investment for Moneyweb and it is pleasing to see the take-up of the product by both individuals and corporates,” says Moneyweb Managing Director Marc Ashton. He adds: “Lack of financial education leads to poor money habits and this has a proven negative impact on productivity inside businesses and a direct impact on the bottom line.”

The challenging economic conditions add an extra layer of challenges into the mix, as staff grapple with rising interest rates, a higher cost of living and lower expected investment returns from property and equities.

“As employers begin to see the effects of the macroeconomic conditions filtering down into both the personal and professional lives of their employees, we’re seeing almost daily requests for training and assistance from corporates,” says Money School co-founder Hayley Parry.

“We’ve definitely seen an increase in enquiries within the past two months – including from companies that know that they’re not going to be able to provide employees with increases, or whose employees will be facing retrenchment within the next six months to a year.”

While the tough economy means that many businesses will be tightening their belts, financial education has a proven direct impact on the workforce and should not be ignored.

According to the 2015 PwC Employee Financial Wellness Survey:

  • 35% of ‘Generation Y’ employees find it difficult to meet household expenses on time each month
  • 30% find it difficult to make their minimum payments on their credit cards
  • Less than half (43%) are confident they will be able to retire when they want to

Gary Kayle, Money School co-founder says: “As money coaches, we know that there are many external factors which employers and employees cannot control when it comes to money. But what they can do – is help employees translate their hard work and effort into debt elimination and wealth building activities. That is something that is within their control and there has never been a better time for employers to showcase that they care about their staff’s financial wellbeing.

“You only have to see the testimonials and feedback we receive to understand the massively empowering impact that this has on staff morale and productivity.”

5 Innovative Finance Products Launched

SmartRand

Developed by financial planning firm Galileo Capital, SmartRand is one of South Africa’s first ‘robo-advisers’. The online service gives anyone, with any amount of money to invest, access to advice and the ability to invest securely through its platform.

SmartRand takes users through a detailed questionnaire that assesses their risk profile and their investment goals before recommending a suitable product for their needs. It currently uses a selection of just five passive fund choices to keep things simple and the costs low.

Just Retirement

With the reform of the pension fund industry a government priority, Just Retirement’s ‘enhanced annuities’ offer potential benefits to anyone with a below average life expectancy. Since the likes of smokers or those with medical conditions have different risk profiles, enhanced annuities can potentially increase their retirement income.

Based on a telephonic questionnaire, Just Retirement assesses an individual’s risk profile and offers them an annuity rate based on that risk. It therefore moves away from the one-size-fits-all approach that is currently the norm.

RMB Krugerrand Custodial Certificates

A first in the world, Krugerrand Custodial Certificates give investors to own Krugerrands while enjoying the liquidity of an exchange. The certificates offer a low cost way to invest and store gold, with the option for investors to take delivery of the physical product if they prefer.

Investment Solutions stokvel funds

Members of stokvels in South Africa currently put between R45 and R50 billion into these organisations every year. However, the systems employed by most financial services companies simply don’t recognise these structures or provide ways for them to use formal savings methods.

Investment Solutions has therefore designed a targeted product offering that recognises stokvels as entities and provides special application forms for their FICA registration. This gives stokvels the opportunity to invest in unit trust-type funds to earn better returns for their members.

Absa Stockbrokers ETF only account

As passive products grow in popularity in South Africa, financial services providers are increasingly looking at ways to make investing in them easier and cheaper. The ETF only account from Absa Stockbrokers does exactly this.

For a brokerage fee of 0.20% per trade and a minimum fee of R20, the platform allows South Africans to invest in any locally-listed ETF at a reduced fee. Particularly for large lump sum investments, this is a very competitive rate.

Advice for a young investor

I am truly sorry to hear of the loss of your father. Taking responsibility for the family’s finances at 22 is no small task. I trust that over time, the pressure of managing your family’s financial matters and completing your studies holds you in good stead in the future.

As you embark on this new journey in the investment world, I want to stress the importance of staying anchored in your financial goals and the investment strategy you choose to use in order to achieve them. If you do not believe in your investment philosophy, your prospects for success diminish and you are at the mercy of emotion.

You should also remain mindful of the following principles: risk and return are related, diversification is the antidote to uncertainty, asset allocation determines the rate of return in a diversified portfolio, and emotion undermines the best investment strategy.

I will address your question pertaining to your investment strategy but I am unable to offer further guidance as I have limited information as to the capital invested as well as your monthly income needs and future goals. You will also need to talk to a professional with regards to the potential tax implications of your decisions.

The main purpose of the MSCI World Index ETF is to track the MSCI World Index. The fund follows a buy and hold strategy, commonly known as passive investing, which results in lower management costs compared to most actively managed funds.

Tracker funds typically offer long term capital growth. If you want to achieve maximum capital growth over the long term, however, re-investing dividends is essential in order to maximise the compounding effect.

That said, there are a number of reasons why I agree on the approach you have described as the launch pad for your investments:

  • By choosing to invest directly offshore via tax clearance, you avoid annual asset swap fees charged when investing in South African-registered foreign investments.
  • At a later stage, being invested directly offshore will give you access to a much wider range of investment options, should you wish to diversify your portfolio.
  • Another advantage of being directly invested offshore is that you will be disinclined to cash in your investment should the need arise.
  • Your choice of an ETF is both simple and very cost-effective. Vanguard in particular is considered to be the leader of index tracking investment options worldwide.
  • You automatically achieve a very wide level of diversification within the asset class you have chosen, which in this case is global equities. The ETF you have selected contains over 1 700 underlying shares spread across the globe.

However, given that you mention that you wish to use the dividends for monthly expenses, you do need to consider that

  • The investment you have chosen is not designed to maximise dividends. If income is therefore your primary goal, this may not be the most effective way of achieving that.
  • The Vanguard MSCI World ETF also does not pay out dividends every month. Distributions are only made quarterly. On top of this it is administratively clumsy and expensive to repatriate dividends every few months to South Africa.
  • Withdrawing dividends is also potentially in conflict with the long term nature of the investment. The reinvestment and compounding effect of the dividends within the investment are important factors in achieving a healthy positive real return over time.
  • Index investments can never take advantage of specific opportunities that present themselves. The return of the investment will always be similar to the index.
  • While the employment of an index-based investment may form part of an overall investment strategy, it should not comprise the sum total of your strategy. Once your portfolio has achieved a certain level of growth, you should diversify into various growth asset classes and sub-classes such as equities in emerging markets, property, bonds and possibly even hedge funds. Within such a strategy, you should employ both passive (index) strategies as well as active strategies in order to achieve maximum returns.