HFI will help you build a brighter future for your children

Unlike the world we grew up in, children today are born into a far more competitive environment. It is more difficult to get a head start in life, with education and specialisation now critical to job and income security. It’s therefore not surprising that many parents and grandparents want to provide an investment nest egg to give their children and grandchildren a platform to build an independent life.Roy Nadine and kids on beach

Putting the great Australian dream within reach

One financial hurdle confronting young people more than ever are the dramatic changes in the cost of housing in relation to income.

A report from the Reserve Bank of Australia* indicates that in the early 1980’s the median cost of housing was around three times the median income of that period. By the late 2000’s this ratio had doubled to around six times the median income. That means the great Australian dream of home ownership may well be out of reach for many who will be entering the market in the years ahead.

There are two aspects to home ownership that young people will need to deal with: having the savings for an initial deposit and having the earnings to qualify for and service a mortgage. While you may not be able to help with the latter, an investment plan begun in a child’s early years may well be the answer to the initial challenge of having a sufficient deposit to get the ball rolling.

Imagine the joy of being able to hand over a cheque to cover their home deposit, so that they can have the security of home ownership as the basis of their financial future.

The cost of a good education

In days gone by, it was quite common for someone to remain with the same employer through their whole working life. The reality for today’s children is quite different. The job market is much more competitive and is oriented to individual performance, skill and specialisation, rather than reliance on a stable employer or trade union membership.

The critical factor in this day and age is education. The better skilled our children are, the greater their ability will be to secure a better income. The cost of obtaining a tertiary education, however, can be enormous and completing a university degree these days can easily accrue tens of thousands of dollars in HECS-HELP debt.

HECS-HELP costs are dependent on the type of course taken. There is a three tier system of costs, which is based around the income earning potential that the area of study will ultimately equip a person to generate. The top tier relates to degrees in areas such as law, medicine and accounting. A four year law degree for example, may incur a HECS-HELP debt of over $40,000, based on today’s HECS-HELP rates. Being able to fund this cost through an investment plan for your child can give them a massive head start in life by relieving them of a major financial burden.

Employ the power of compound interest

Being able to gift such large amounts of money to your children or grandchildren may seem daunting, but it can be very manageable if you employ the power of compound interest.

By starting an investment program as early as possible in their life, you can get time on your side and allow the compounding effect to build a substantial sum, even if your monthly savings amount is a modest one.

Just $1,200 a year invested at just 5% interest will compound to almost $40,000 over a 20 year period. Whether you want to give your child the gift of a university education, a home deposit or just an investment nest egg that they are free to use as they please, a regular contribution to an investment program can make it a reality, without breaking the budget.

Financial security beyond investment

While providing a cash lump sum can be an invaluable boost to their future, a potentially even greater gift can be given through Child Cover. For a small premium you can insure your child’s life against premature death or serious illness, so that you will have funds to enable you to give them the best possible care if the need arises.

Beyond the security during their childhood, a Child Cover policy ensures their future insurability by giving them the option to continue the cover when they reach adulthood, regardless of their state of health at that time.

* Reserve Bank of Australia Bulletin December Quarter 2012