Barefoot Investor: Dump the Bump when saving for kids
THE Barefoot Investor is over the moon to be having a new baby and is giving advice to new and soon-to-be parents, including how to help your child save and which schemes to avoid.
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THE first time, my wife flung her arms around me and, through tears of sheer joy, whispered “we’re pregnant”.
The second time, she raced up behind me and squealed with delight.
The third time, she pushed open the bathroom door, locked her eyes on me, and pitched the plastic preggo stick square at my noggin.
(To be fair to her, it was a Friday night and I’d just got home from the pub … so I wasn’t exactly on my A-game.)
That was 22 weeks ago.
For the record, we’re over the moon to be having a new baby … it’s just that Liz was wanting a few months before going back into the “baby bubble”. (Fun fact: at our pre-marriage counselling session, Liz put down that she wanted three kids … I put down six. Time will tell who wins.)
Here’s one thing I do know: unlike buying a slab of beer, it doesn’t get cheaper the more kids you have. According to a study by Suncorp, the average Australian parent spends $297,600 raising a child to age 17.
Hang on -- $297,600? That’s a very specific number. Maybe Simon from Suncorp followed junior around with a Casio every day of his life. And then on his 17th birthday Simon hit “equals” and triumphantly announces, “You cost me $297,641.32! But hey, I’m your dad, so let’s round it down to $297,600”.
Either way, it’s a huge number.
Worse, Suncorp’s research suggests it costs $984 per month for the first two years of your child’s life.
That’s a huge whack of dough for any young family, let alone for those of us who want six kids (no wonder Liz threw the stick at me!).
So in celebration of our currently baking baby, this week I’m answering questions from new parents and parents-to-be.
Tread Your Own Path!
DUMP THE BUMP
EMMA ASKS: First, I want to say thank you.
I have been following the Barefoot system and this year my husband and I got pregnant with our first child!
I am self-employed and had planned to work until a few weeks before he was due and then take advantage of government maternity leave.
But he had different plans and arrived 10 weeks early; he’s still in the hospital ICU but thankfully doing well.
More so, thanks to your book, we have two months of living expenses saved up and therefore can focus on our amazing little man rather than worrying about work.
A friend has suggested that, rather than buy him gifts, we should drop some money into an account for him. Is Westpac’s “Bump Account” worth looking into?
BAREFOOT REPLIES: I don’t know what you’re thanking me for — you did all the hard work.
(Then again, I have always said that Barefoot Date Nights are a wonderful aphrodisiac … and given we’ve sold 480,000 copies … that’s a lot of lovin’ going on.)
Now, to your question.
The Westpac “Bump Account” really should be called the “Dump Account”, because it seriously has a stronger stench than your little one’s nappy.
Here’s how Westpac puts it: “On our 200th anniversary, every child born in 2017 is eligible for $200.
If your parent opens a Westpac Bump Savings account in your name, we’ll deposit $200 into it, which you can withdraw when you’re 16.”
OK, let’s rip off that soggy, boggy nappy off!
First off, you (the parent) have to wait 16 years to get the money.
Second, you’re dropping your kid into the bank’s sophisticated marketing funnel — which will go into overdrive when they’re 16, rebellious, possibly emo, and desperately lusting after a new iPhone 24.
Third, the interest rate they’re offering is trickier than a teething poo. The base interest rate is a stinker 1.5 per cent and to get the advertised rate of 2.3 per cent you’ll need to make a monthly deposit, ensure your account balance is higher at the end of the month than at the beginning, and keep your balance above $0 at all times.
Finally, and most importantly, if you’re saving long term for your kids, you’d be better off investing the money into shares via a low-cost index fund or a listed investment company (LIC) such as the Australian Foundation Investment Company (AFIC).
In other words, dump the Bump — your kid can do better!
FACING DEBT DEMONS
NATALIE ASKS: I need your help. I am 34, on maternity leave and near broke … though still inspired by my five-month-old baby.
I should be secure, relaxed and focusing my energy on the bub (despite the sleepless nights).
The trouble is, in my 20s, I racked up credit card debt to the value of $7000. Years ago I took out a “zero balance” transfer to another bank and it has now grown to $17,000!
I am ashamed, but have come clean about it with my partner. He just handed me your book and I am now in “Debt Domino” mode, gradually paying it down on my $88,000 wage. But what else can I do?
BAREFOOT REPLIES: Well done for facing your debt demons. Trust me, everything gets easier from here.
Doing the Debt Domino (paying off your debts smallest to largest) will build up your self-confidence, while systematically knocking down your debts.
However, before you start knocking down the dominoes, I’d like you to check how long it’s been since you made a repayment.
Reason being, if you haven’t touched it for six years you may find that it’s a “statute-barred” debt and you may not be legally required to repay it (note: your credit rating will be shot if you don’t pay, but that will eventually go away, too).
Now, do me a favour and pass me over to your partner. Go on, do it. I’ll wait.
Hey, champ! Well done for giving your partner my book — it’s a great first step, but you need to do more.
See, this amazing woman is not only the mother of your children, but your partner in life. You need to work together on knocking out these debts as a team.
There’s only upside for you. First, you get out of debt quicker; second, you build strong financial habits that will ultimately change (or prune) your family tree; and third, you’ll have a happier wife … and a happier life.
CAVEAT CRISIS
TESS ASKS: My partner comes from a wealthy family.
We are engaged, are having a baby and have joint finances. Four years ago he was briefly engaged to someone else and he bought a house with a $50,000 inheritance from his grandfather.
At the time, he and his parents agreed to a caveat to protect his asset from her. Wise move, and it worked. Fast forward to now, and I have been jointly paying for this same mortgage for a long time, on my wage of $110,000 a year. We want the caveat removed; they don’t. Advice?
BAREFOOT REPLIES: This sounds like the plot of a made-for-TV rom-com. You meet the man of your dreams, but his meddling parents don’t approve of you!
While I’m only getting your side of things, here’s what I’m reading:
One: it was originally your fiance’s inheritance, so it’s his money, not his parents’ money.
Two: you’re now helping pay off the mortgage, so your name should be jointly on the title, if it’s not already.
What’s more, if you can get the caveat lifted, you may find that you can get a cheaper deal on your mortgage.
Three: the difference between you and his last squeeze is that you’re pregnant with his child — their grandchild.
In other words? Dude’s on the hook for 18 years, as Kanye would say.
Besides, in the grand scheme of things, $50,000 isn’t a huge amount of money — it’s more about the principle of your in-laws treating you like a fly-by-night floozy who’ll one day shake down their son.
My advice? Just like in all good rom-coms, your fiance needs to stop being a mummy’s boy, stand up to his parents, and defend your honour!
The Barefoot Investor holds an Australian Financial Services Licence (302081).
This is general advice only. It should not replace individual, independent, personal financial advice
Originally published as Barefoot Investor: Dump the Bump when saving for kids
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