Barefoot Investor: When it comes to wealth, looks can be deceiving

Debt in Australia has become an epidemic — while some people drive around in flash cars, in reality they can’t keep up with the repayments. What we really need is a financial revolution in our schools, writes the Barefoot Investor.

Christmas came early for my kids this year … Daddy finally got a job.

(Well, to be accurate, 220 hours of community service as part of my Financial Counselling qualification.)

On my first day, the three of them surprised me by getting up really early and having a celebratory breakfast with me (possibly with the aim of making sure I really did have a job to go to).

And when I returned home that night I was greeted — for the first, and possibly last, time — like David Boon coming home with The Ashes.

“Didja have a lot of meetings, Dad?” asked my six-year-old, beaming with pride.

In the schoolyard, real dads go to work and have meetings. (Not bum around the farm in their trackie dacks.)

It doesn’t matter that he can see me on TV, hear me on the radio, and watch me do book signings with lines a hundred deep: when I’m wearing a tie, carrying a keep-cup and battling the morning traffic, I am THE MAN.

So now that I’m a couple of hundred hours into this job I’ve learned that it’s like being a (financial) E.R. doctor.

Young man pose in sports car. istock image.

No one wants to be sitting in front of me.

They’re often embarrassed, humiliated, angry, scared … and completely strung out about their finances.

My job is to sit them down, calm them down and assess their situation.

It’s basically financial triage: you patch them up, stem the bleeding and send them back out (where you can). Or, if you deem their situation terminal, you tell their creditors and cut deals on their debts.

(This, of course, sounds sexy but, trust me, if your life gets to the point where a bank is willing to write off your debts, you’ll be celebrating with spuds and spumante.)

Above all, what I’ve learnt is that this job is relentless.

Debt in this country is an epidemic, and people of all shapes and sizes stream through the door.

Like a bloke in his 40s who I saw today. He arrived for our appointment in a BMW X5.

“Why does this guy need to see me?” I thought to myself.

He sat down, threw his fancy keys on the table, and buried his face in his hands.

He confessed that he’d leased the car five years ago and now couldn’t afford the final balloon payment. (And if you don’t know what a balloon is — don’t feel bad — neither did he.)

The upshot was that he was broke and the Beamer would soon be repossessed.

Yet you know what?

To the outside world he’s THE MAN. He’s got an awesome car that he drops his kids off at school in.

By the time he came to see me, it was too late for him to avoid his mistakes. But it’s not too late for his kids.

And what this financial tour of duty has taught me is just how much we need a financial revolution in our schools.

My client grew up thinking that success meant leasing a $100,000 Beamer … and he paid the price.

I want his kids to grow up knowing that success is driving a $15,000 Toyota … that you own outright.

Tread Your Own Path!

In case of financial emergency, fit your own breathing device first.

Q&As

MY FINANCIALLY FOOLISH IN-LAWS LIED

CASEY WRITES: My retired in-laws are bad with money — in fact they had to sell their still-mortgaged house to pay off a $50,000 credit card debt.

While they sold (over six months), we paid their mortgage from our own house deposit account.

And then they bought a new mortgaged house they could not afford, and lied to us about how much it cost!

They will not listen to reason, and I am sure history will soon repeat.

Do we help them again and sacrifice our financial future, or do we refuse and feel heartless for letting them suffer?

BAREFOOT REPLIES: If I were you, my index finger would be in plaster from all the finger-waving I’d be doing at these financial fools.

However, I’m not you, and I don’t have to sit across from them at Christmas lunch.

Ultimately, this isn’t about your parents-in-law, it’s about your marriage. Your husband would be conflicted: he’s caught between his parents and his wife.

So, to your question: do you keep helping them?

Three words: no, no and no. Again, easy for me to say, hard for you to do.

So I’d suggest you go on a date night with your husband and explain that you’re willing to forgive and forget their past financial faux pas (because, really, what other choice do you have?).

However, from this point on, you want to make a pact that you won’t enable their poor behaviour again.

Besides, as the flight attendant says: “In case of emergency, fit your own breathing device first.”

Then brace for impact!

EXTINGUISHING FINANCIAL FIRES

MEL WRITES: My mother’s home in Nymboida (northern NSW) was lost in the bushfires that ravaged the community last weekend.

She has spent the past 30 years building a beautiful home yet, within hours of evacuation, the entire place was wiped out.

We contacted NRMA for a house and contents claim, only for them to insist we itemise everything — yet it’s all gone! In your book you mention you were able to demand payment in full after your house burnt down.

Is there a script that we can use to achieve the same?

BAREFOOT REPLIES: Give your mum a hug for me.

Your mum has just gone through a significant, stressful life event — so understandably she may not be in the right frame of mind to make far-reaching financial decisions, let alone battle an insurance company.

There are two things to consider: reimbursement for your contents, and managing the rebuilding process. While I haven’t read your mum’s policy, most insurers have what’s known as a “sum insured” value.

Once they’ve established her home has been destroyed, they should pay that figure out as a lump sum for contents almost immediately.

Don’t let them play games with your mum: go back to NRMA and tell them that it’s far too traumatic to make her itemise everything she’s lost.

Tell them to pay up the contents insurance pronto (and if they give you any stick, write back to me).

But when it comes to getting a lump sum for rebuilding, I’d be wary.

Yes, I did it, but I was confident of managing the entire rebuilding myself (and investing the proceeds in the meantime).

However, if the onus of rebuilding is on your mum (rather than having the insurer manage it), that could be pretty stressful … and that’s the last thing she needs right now.

Let the insurer deal with it.

A reader says he and his dad are off to Bali after doing Barefoot for a year.

A 12-YEAR-OLD STEALS THE SHOW

COREY WRITES: I am 12 years old and I have dysgraphia and ADD.

My dad has been doing Barefoot for 12 months and now we are able to go to Bali for a holiday … just me and him.

My grandma has promised $25,000 to me from an inheritance she received from her uncle.

I want to invest it in shares but Grandma keeps telling me they are too risky.

How can I convince her to put some of the money into shares instead of the bank? What can I say to her to let me invest even a little bit? I have saved $600 on my own already!

BAREFOOT REPLIES: I have to admit I didn’t know what dysgraphia was, so I googled it:

“Dysgraphia can appear as difficulties with spelling, poor handwriting and trouble putting thoughts on paper.”

Dude, you’re doing great!

Seriously, I’ve employed people way older than you who can’t express themselves half as well as you can.

You need to use those communication skills to help educate your grandmother.

Ask her about all the tough times that have happened in history: the wars, depressions, recessions and financial crashes.

MORE BAREFOOT INVESTOR

Well, over the past 120 years, the Aussie share market has returned, before inflation, a 10 per cent per year return.

Next, go to the ASIC MoneySmart website’s compound interest calculator:

Type in $25,000 and then 10 per cent for the return which, over the past 120 years, is the long-term (pre-inflation) return that Aussie shares have achieved.

When you’re 30 (18 years) that $25k could be worth $140,000.

By the time you’re 60 (48 years) that $25k could be worth $2.5 million.

She’ll be one proud grandma.

If you have a burning money question, go to barefootinvestor.com and #askbarefoot

The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need (HarperCollins)RRP $29.99

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: When it comes to wealth, looks can be deceiving