Mercer Wealth Solutions - Wealth information - Superannuation, Investments, Financial Advice

Provided by Mercer: 17/12/08

In 1991, Douglas Coupland wrote his first novel, 'Generation X: Tales for an Accelerated Culture' - from it, the term Gen X was coined.

Used to describe people born between the years 1965 to 1981 (though the time frame varies depending on source), most Gen X-ers are now in their 30s or early 40s. They tend to have a mortgage, be married or in a relationship, and have one or two children. Often they’re earning more than their parents did at their age and have potential to build wealth – but they’ve also had to pay for their education and cope with high property prices so they’re saddled with debt. They probably haven’t thought much about retirement and the traditional definition of retirement – stopping work at the age of 65 – may not be on their horizon.

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Given all of this, what are the top five financial planning strategies Gen X-ers should be thinking about?

1. Reduce debt

Household debt (as a percentage of household income) has risen from 50% to around 160% in just ten years and and is more than twice Great Depression levels. A budget is absolutely fundamental to any financial planning strategy. Knowing where your money goes allows you to better manage it so you don’t end up, at the end of every month, wondering why you’ve nothing left – or worse, with mounting debts. There are lots of online budget planners available. They’ll help you record factual information regarding your current and future expenditure and identify your current savings and debt reduction capacity.

2. Plan for your children’s education

The cost of a year’s tuition at many Melbourne private secondary schools is topping $20,000 (and prep fees at some are over $12,000). And public schools have some significant costs including uniforms, excursions and sporting equipment.

Regular saving is a good way to approach paying for your children's education, particularly if you start early enough. There are a number of options including:

Insurance Bonds – can be a tax effective way to invest, providing you have a longer term time frame and are in one of the higher tax brackets. These bonds are taxed internally and are generally not subject to capital gains tax.
Regular savings plan. If you receive a salary increase or a tax cut, commit that amount of money after tax (if you can afford to) to a regular savings plan. Arrange a direct debit so the money is invested on a regular basis.
A geared investment portfolio that is earmarked for future education expenses.

3. Protect your family

If you don’t have a comprehensive risk protection plan in place, you and your family are vulnerable in the event of a major illness, injury or death. Review your insurance cover and ensure you have adequate income protection, trauma, life, and total and permanent disability (TPD) insurance. Also check your estate planning provisions. Do you have a formal will, structured to take care of your children’s future welfare? Have you organised an Enduring Power of Attorney in the event that you are incapable of acting on your own behalf?

A Mercer financial adviser can assist you by reviewing your insurance needs.

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4. Build wealth – invest regularly, even if it’s not a lot

Even if there’s not much money lying around, Gen X-ers can build wealth using a drip-feeding strategy. Starting with as little as $1,000, invest monthly into a managed fund. The managed fund can be sector-specific – for instance, Australian shares – or a diversified fund that invests across a range of asset classes. Any earnings are taxed at your marginal tax rate so it is generally better to invest in the name of the spouse who is on the lowest marginal tax rate.

5. Get engaged with your super

Many Gen X-ers were still at school in 1987 and the recent stock market volatility has been the worst they’ve experienced while in the workforce. In October, we noticed a marked increase in the number of people in their 30s calling Mercer Helpline Services and seeking detailed advice through our financial advisers.

Get engaged with your super and make sure it’s doing what you need it to do. There are two recurring pitfalls that people make about their super and both tend to be due to lack of engagement.

The first is accepting the default investment option with a super fund when starting with a new employer. Make sure you know what option you’re in and that it fits your goals and timeframes.
The second is holding more than one super account. The average Australian has more than three super accounts – that’s three sets of fees, three investments to keep track of, and three lots of records. Consolidating super can make good sense but seek financial advice first.

There’s a lot going on in the lives of Gen X-ers but take the time to look at your financial strategy and check you’ve got all the pieces in place. As always, when looking for the most appropriate financial planning options, speak to a licensed, or appropriately authorised, financial adviser.

More information

Develop a personal financial plan to meet your goals - call 1800 633 403 to speak with a Mercer financial adviser.
Check your insurance cover meets your needs. Find out more here.
Start a budget today: Use our online budget planner.

Financial planning strategies for Gen X-ers