The dangers of debt: My son is on the Nibble!

YOU have to leave it to life to teach your grown-up children about getting into debt and dealing with payday predators, says Scott Pape.

YOU have to leave it to life to teach your grown-up children about getting into debt and dealing with payday predators.

 

JENNY ASKS: Urgent help needed! My son is turning 30. He earns good money. He doesn’t live at home but pays very cheap rent. Yet I have now found out he lives borrowing on NIBBLE — he owns nothing and is still paying off his $30k car loan. You had an article in the Herald Sun some time ago about these loan sharks. Can you send it to me so I can send it to him? I give him hints all the time about him about it, and I even bought him your book, but nothing is doing any good.

 

BAREFOOT REPLIES: I think you mean that your son is taking out loans with a crowd called “Nimble”, who target Gen Ys with TV ads showing an ironic hipster rabbit. Their tagline is “smart little loans”. They’re trying to be all 2.0, but the truth is they’re just another payday predator. As a parent, my heart goes out to you. It’s totally natural to want to help (read: nag) our kids into making smart decisions. However, your son is now a grown man and he’s obviously not listening to you (or me!). So you’ll have to leave it up to life to teach him this lesson. And based on Nimble’s terms, it’ll be delivered sooner rather than later. When it does, don’t bail him out under any circumstances.

SUPER MOVE

JAMES ASKS: I am 42, and am a high-income earner ($260,000 a year) and my wife is a stay-at-home mother. I know I am able to make an after-tax contribution to my wife — but am I able to make a pre-tax contribution to her super account?

BAREFOOT REPLIES: Yes you can. You split your employer super contributions (including salary sacrifice amounts) up to $30,000. You get the tax breaks, she gets the extra cash in her super. You’re the man! Happy wife, happy life!

OUT OF TUNE

JESS ASKS: Do you have any recent information on Australian Scholarships Group and the new more flexible fund they offer? We have contributed for our son since birth (he’s now eight) and we start getting a dividend in high school. Our daughter is now seven. We didn’t do the same for her, however, because we want to invest now. Suggestions?

BAREFOOT REPLIES: My thoughts haven’t changed on the Australian Scholarships Group (ASG) — it’s a horrible business, spruiking expensive investments with emotionally manipulative marketing. It’s the financial equivalent of a Rob Thomas concert: offensive in every way. If only one of you is working, I’d suggest you look into buying Australian Foundation Investment Company (AFIC) in your name with an account designation that it’s for your son. Tick the dividend reinvestment box. However, if you’re both working, check out investing via a low-cost investment bond with an Aussie shares option. Either way, don’t blow your dough on ASG.

An insurance broker can help you on picking the right policy.

POLICY PUZZLE

JANET ASKS: My home insurance is up for renewal and (like Tegan who wrote in last week) I’m looking for a total replacement policy. You said you use an insurance broker — is that the right step for everybody? And if it is, how can I tell which ones might rip me off? I am a single mum with two little boys and I am on a little income.

BAREFOOT REPLIES: I’ve received a lot of mail about this, so now’s a good chance to explain how this all works. There are a number of insurers who offer “total replacement” policies, but it’s certainly not the standard in the industry. The standard is “sum insured”, which is pretty simple: you guesstimate how much your home would cost to replace and insure it for that value. If you’re wrong and the house burns down, the insurer will only cough up the sum you’ve insured for. You foot the difference. Therein lies the problem. Most people have no idea of the true cost of rebuilding a home. A good insurance broker will know, and will advise you accordingly. They’ll also read through your policy and alert you to clauses that could affect your ability to claim. And, if you have to claim on your policy, a good broker will represent you. How do you find a broker who won’t rip you off? It’s actually a lot like dating. Don’t fall in love with the first guy. Make sure he takes the time to educate you, rather than just selling you on how big his policy is. And always trust your gut. Good luck.

OVEREXPOSED

GREG ASKS: I have inherited $500,000. My existing super fund balance is $140,000. I own my home and have an investment property (value $500,000) that I owe $230,000 on. I plan to work for another five to 10 years. My accountant is recommending I set up the SMSF as a “tax structure”, saying it is the “last tax haven” available. I am keen to buy more property with the funds in the SMSF. What do you think?

BAREFOOT REPLIES: Here’s a car analogy: Your accountant is selling you on how wonderful cars are — “beats the hell out of walking!” Of course you could buy any old car to get you round, but your accountant is suggesting you rent a car from him. (Perhaps I’ve been watching too much Top Gear, but the analogy I’m using is the ongoing fees in an SMSF that would flow to the accountant’s pockets.) However, if you were sitting across the desk from me, I’d suggest you’ve already got too much exposure to residential property through your own home and investment property. I’d suggest that diversifying into local and international shares would be a smart idea — and generally share funds give a better income yield in retirement with less hassle. Speaking of hassle, I’d ask you about how active you (and your partner) want to be with your investments. If it’s not really your thing, I’d suggest you try an ultra-low-cost super fund. But then again I’m not a car salesman.

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The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice