Financial education trumps winning the lottery or having rich parents

We’ve all heard the stories of people who win the lottery and then plead poor when they lose it (or spend it) all. Most Australians will also be well aware of the extraordinary wealth of mining heiress Gina Rinehart…

It’s true that both Gina Rinehart and our unfortunate lottery winners have ‘inherited’ wealth in common. However, there is one key thing that sets them apart, and that is Gina Rinehart’s knowledge of how to manage her money.

Gina Rinehart did not become Australia’s richest woman by accident or frankly, by birthright. Certainly, Lang Hancock was a shrewd businessman but this is a woman who took her father’s legacy and turned it in to something larger, more successful and more profitable. With the same level of financial education and mentoring, it’s entirely likely that Ms Rinehart could have proportionately created the same level of wealth if she’d been working with only the average pocket money of a 10-year-old.

Increasing wealth is less about the amount of money that you start with and more about your skill and attitude toward spending, saving or investing it.

Australian households are currently holding a record amount of personal debt; mortgages, personal loans and credit cards. According to data from the Australian Bureau of Statistics, household “debt growth has outpaced that of incomes and assets (…), helping to drive the proportion of households who are over-indebted up from 21% in 2003-04 to 29% in 2015-16”.1

Adding to this gloomy picture, our recent survey found that Australia’s financial literary is at alarmingly low levels.

  • 80% of respondents were concerned for the financial future of young Australians.
  • 69% of respondents don’t believe Australian children understand how money works
  •  79% of respondents believed that the majority of Australians do not understand the superannuation system. A huge 92% believed that the majority of Australians with superannuation accounts did not know the exact total of their accounts.
  • 74% of respondents agreed that it was harder to get on the property ladder now than it was 10 years ago.

The alarm bells are ringing loud and clear. So, where should Australians be getting their financial education?

Managing financial issues takes skills that should be taught in high school, but often aren’t, leaving many people financially illiterate to the point where they can’t even understand credit card interest rates. Remember our unfortunate lottery winners? They’re simply not equipped to handle the sudden wealth and as a result of poor financial choices, wind up in worse circumstances than before their big win.
If you’re a parent who wonders about your children’s decision making when it comes to finance, you’re not alone. Whether it’s about mentoring your children to continue to build your legacy as Gina Rinehardt’s father did, or whether you’d just like to get them started with the basics of financial literacy, there are many options, here are just a few:

Under Age 10

  • Establish a trust fund: This may be a viable and worthwhile option for the minors in your family. A trust can be a good way to set aside assets for your children, while improving your tax position. The person or company that manages the trust is known as the trustee, and in this scenario, for the child or children, the beneficiaries, who will eventually receive the money. The age of 10 can be about the right time to let children know that there are accounts which will ultimately become theirs and to start teaching them about saving and compound interest.
  • Understand wealth: Instead of concentrating on money and material items, you can talk to them about your values, the opportunities money can provide and what you want to accomplish with it.
  • Practise makes perfect: You could consider giving your children a small amount of money and start to teach them how to save, invest, spend wisely and, give to charity.

10 to 18 Years Old

  • Book a trip to the Financial Adviser: If your child has an existing investment trust or a substantial amount of money, now is the time to set up a visit with your financial adviser. Discuss with your adviser ahead of time what you want your child to learn in this session, so they are prepared. This is an important step as your child gets older and their finances become more complex, as they will look to their adviser for support as a trusted confidant. This will help set your child up for the education, travel and living expenses coming their way. And, it will reinforce that financial advice and education are a critical part of building wealth.
  • Consider an incentive trust: Many young adults are not quite ready for the pressures and responsibilities that come with inheriting wealth. However, there is a way for you to use family trust funds as a positive motivator, monetarily rewarding younger generations for their achievements. “Incentive trusts” are designed to reward good behaviour and discourage what you consider destructive. The trustee can be empowered by the incentive trust’s provisions to reward a beneficiary for demonstrating prudent behaviours or achieving goals in education, employment or philanthropy. It is important to make sure young adults understand what’s coming from any trusts they may receive, and encourage them to plan how they could use and invest this money.

Early 20s and beyond

  • Understanding adult-hood: Adult children in their 20s are usually ready for more information. If your young adult is thinking of buying a home, for example, it’s the prime time to give them a helping hand when it comes to understanding the associated and sometime hidden costs.
  • Introduction to financial planning: When it comes to financial planning, the sooner your children start, the harder their investments can start to work for them, and the sooner they’ll develop the financial habits that will allow them to reach their goals. If you haven’t done so already and you have a family adviser you already know and trust, now is the time to introduce them to your child. Your adviser can educate your children on general money management, open a trusted line of communication on matters concerning family wealth, and work with your family to ensure your legacy endures.

While we all hope to leave our children with a legacy to carry on, perhaps your greatest legacy should be the values, money management skills and work ethic that your children inherit from you.


Note: There are various taxation consequences to be aware of when income on capital is distributed to minors. Always get seek professional advice when considering implementing financial structure such as Trusts.

[1] Australian Bureau of Statistics 2015-16 Household Income and Wealth Australia
[2] Trilogy Funds Financial Literacy Survey 2017