It is hard to get people interested in the financial world in general, let alone your children. But young people are a group of people who could benefit the most from financial literacy and the use of superannuation. There is a huge generational gap when it comes to total wealth, and understanding “what is super” can help.
It is also important for your children to understand how an investing opportunity can be Halal and fit in with your faith. Managing money for Aussie Muslims has been easier than ever with companies like Crescent Wealth focusing on helping you with money management.
But how should you explain all of this to your children? It’s certainly not going to be a topic that comes first to your child’s mind. Keep reading to learn some of the key points you should make to help them understand the importance of Halal supperenuation.
1. Explain Things in Plain Terms
Most young people will hear the word “superannuation” and check out. Young people did not have the benefit of learning about financial literacy in school. You can give your child a great gift simply by explaining all of the different factors that come with managing money. If you can, create a small script to help you go over the finer details.
It is a good idea to start out with a plain definition: superannuation is a consistent payment that is put into a fund (or super) by an employer to contribute towards the employee’s retirement or pension. Your child may mention that their employer is already contributing to a fund – at this point, you should expect to explain how some funds are better than others in terms of compounding and faith.
Compounding has to do with how money can grow over time, outpacing inflation, through compound interest. This can see big results over the years, even with small contributions. If you contribute just $30 a week until retirement, compound interest can easily see six-figure returns – that should excite your children! Seeing examples from your own life can also help to demonstrate that not only is it possible to save while having a good life, but you have also gone through the same process.
Another huge factor is ensuring that your super is in compliance with Islam and its beliefs. Supers work to invest your money in different sectors to help it grow. How would you feel if your money was being used to invest in things contrary to your beliefs, such as gambling services or weapons manufacturing?
Instead, you can choose a super which invests in the right places, such as in health care or natural resources. Explaining these points can show children how money can grow without compromising their morals.
2. Help Them Form a Plan
Again, remember that sadly most young people don’t know much about how to deal with financials outside of a regular savings account. If you have the time, it’s a good idea to walk your child through their goals and desires in life. Have them think about their most ideal (but realistic) future.
That future will likely be filled with children of their own, a nice house, and enough money for decent vacations and fun hobbies. These things are all achievable with proper budgeting, saving, and investment.
A survey of Americans, reported by Australians found that around half of American Millennials didn’t have a retirement account – it’s likely not all that different in Australia. And don’t forget that you’ve just told them about the benefits of compounding, the earlier your child starts saving the better off they will be in the future.
Many areas of your children’s goals will impact how much they need to save for retirement. Do they dream of retiring abroad or in an expensive area? That will mean they need to contribute more to support their desired future lifestyle.
It’s also important to impress upon your children that things can change or go wrong in their lives that could impact their savings. For instance, if they want a family, that can impact their ability to save. Unexpected illnesses or injuries can prevent the ability to contribute regularly.
Even moving abroad to work can mean being unable to contribute to their normal super. It is always a good idea to lay out everything you want and have contingency plans if things don’t go as planned. For instance, having better insurance to cover extended time off work due to injury could mitigate the impact this would have on a retirement account.
Simply being aware of all these different factors will likely be somewhat overwhelming if your child hasn’t encountered this kind of information before. Don’t worry, your child can be far ahead of the game just by starting out with a written plan and opening an account.
3. Talk About Their Options
There are many different ways to encourage your child to contribute and make a change. Show them that they don’t have to rely only on their employer’s contributions if they really want to plan for the long term.
They can do this through two different methods: salary sacrifice and personal contributions. Salary sacrifice is exactly as it sounds, you can request for a portion of your salary to be added directly to your super. You can’t miss the money you don’t see and the pain of directly contributing every month is gone.
Personal contributions are the best for those who are self-employed and you can contribute a lot more under this method for each financial year. There are many different rules and regulations surrounding these two so be sure to check out these in detail.
4. Don’t Forget to Discuss Tax
Tax is something that is easy to forget about because it is such a boring topic – for everybody, not just young people! Having to deal with your first tax year can be stressful and annoying. Having someone there to explain some details and how to save money can be highly beneficial, and your children will likely appreciate your help navigating this difficult time.
One way to feel like you are not losing money is through super contributions. Depending on the type of contribution, they aren’t taxed in the same way. This makes contributing to a super a far more valuable method of saving than a traditional savings account or investing in things like bonds.
Different types of contributions will involve different types of tax as previously discussed. Salary sacrifice, employer contributions, and personal contributions are all taxed differently and it is important for children to understand that some options might be better for them depending on the situation.
5. Work With Them to Create an Account
Depending on how old your child is, this could be their first step into the financial world. Even if they have been working for a few years, they might feel like they don’t have the time to make a change or research things properly due to their busy lives and other priorities.
This is why it can be highly beneficial to sit down with them and walk them through the entire process. In this way, you can help them with any financial details they may not know about.
You can provide encouragement by explaining the availability of apps to help with budgeting and finance so they can accomplish things on the go. If they have concerns about other financial areas of their lives, this is also your opportunity to help them with things like insurance cover options or emergency savings.
If they already have children of their own, this can be a good time to suggest how saving for retirement can help their children as well. Knowing that their parents will be taken care of in their old age can be a source of great relief for children. It can also help them save for other things their children might need or want so they can have the best lives possible.
6. Options for Encouragement
If you have the money, one of the best ways to encourage your children to choose a good super and start making contributions is to make a contribution of your own to their success. If you can gift your child the first month’s contributions or a small nest egg sum to start out, they can begin to see how the process works and what it can do for them.
If not, the great gift is you explaining all of this to them. Information is incredibly valuable and if you make yourself available for any questions and concerns in this area, that can be worth its weight in gold. Additionally, showing how your own account has been progressing can be fantastic encouragement for a young person.
What Else Should You Know About Super?
Now that your child knows everything they need to know about a super, it’s time for them to find one of their own. In this case, the choice is simple! Crescent Wealth is Australia’s only Islamic Super Fund. You can sign up or switch your pre-existing supperenuation in minutes – check out Crescent Wealth today!
Did you find this helpful? Why not share this news?
Talal currently serves as a Non-Executive Director on the Whitlam Institute and Western Sydney University Foundation Council Board. He also serves as Chairman of First Quay Capital and Chairman of the Australian Arab Dialogue. Talal has also served on the Australia Post, Board of Sydney Ports, Macquarie University and the Western Sydney Area Health Service and the Chairman of the Department of Foreign Affairs and Trade; Council of Australia Arab Relations. In an executive capacity, Talal spent 10 years at PwC as a director and strategist, and at investment firm Babcock & Brown in the Corporate Finance Group and later in the Technical Real Estate Division. Later Talal held leadership positions in Better Place Australia, Platinum Hearing and Star Transport Australia.