Irish Financial Review

False sense of wealth

Today’s report from the Irish Central Bank provides some bank holiday cheer; we are all wealthier!

A lot of our new-found wealth derives from rising housing value. Savings and investments also play a role but is the rise in housing value that is the big driver.

The Central Bank is not wrong in its assessment. For over a decade, I have advocated that homeowners buy their homes as a form of forced savings and wealth creation. But, it is just one of a number of key steps I recommend be taken to build, grow and protect personal wealth.

Property, especially buying ones home to live in is a very efficient form of wealth creation. Especially attractive is the tax efficiency.

But property is also a very cumbersome form of wealth creation. Once the property is fully owned – where any outstanding mortgage is fully repaid and the buyer actually owns the property, they cannot fully realise the value of that wealth except if they were to sell it or take on more debt secured against it.

This is why it is important families use other means of wealth creation which they can access in the future. For example, using tax relief to start a pension or participation in a company-sponsored pension arrangement are highly rewarding means of building a flexible form of personal wealth. This is wealth that can be liquidated quickly and tax-efficiently.

Property, when taken as a source of personal wealth is a good way of building that wealth.  But property is also a cumbersome way of accessing that wealth for those still living since it also doubles as their shelter, a basic human need.

For Irish families that fully own or are paying down mortgages on the homes they live in, the latest Central Bank report makes for interesting reading. In some cases, it may help some people feel a little more positive. But, the bottom line is that in order to build meaningful, accessible wealth, investing (not property) is the most efficient way of achieving this and the best way of achieving that is through tax-efficient pension arrangements.

Finally, when it comes to investments, the best route to long-term growth and returns will depend on the cost of management and the Ongoing Charges Figure; the lower, the better as investments stand the best chance of maximum rates of growth when fees are kept to a bare minimum.

Frank Conway is a Qualified Financial Adviser

Eurozone slowdown is good news for Irish homeowners

Economic growth across the eurozone growth slowed at the start of 2018. Economists said temporary factors were partly behind the weakness and that the economy should continue to expand strongly this year.

Gross domestic product across the 19 countries sharing the euro currency expanded by 0.4 percent in the first quarter compared to the last quarter of 2017 and by 2.5 percent year on year, EU statistics agency Eurostat said on Wednesday.

The temporary slowdown is positive news for Irish homeowners, particularly those with variable rate mortgages; the European Central Bank will be in no rush to start increasing lending rates. A majority of Irish mortgage holders carry volatile variable and short-term fixed rate mortgages which are highly sensitive to movements in the key rate benchmarks set by the European Central Bank.

Despite the Q1 easing of economic growth, this is expected to be short-term and economists are predicting that economic growth will return in the second-half of 2018, if not sooner.

However, the 2.5% economic expansion recorded in 2017 is not expected to be repeated in 2018.

Ireland continues to outperform the Eurozone on a number of key measures; economic growth and unemployment.

Connecting kids with better money habits

With children as young as age 7 developing money habits that can last a lifetime, the sooner they begin to develop a positive relationship with money, the better their money skills will be.

But for many parents with children between the ages of 6 and 12, when, how and where to teach their children how to handle money can be daunting.

Should a parent sit with a child in a formal setting or should they use ‘life moments’ to discuss money concepts are common questions I receive from parents all of the time. My answer to both is yes.

Focusing on the here and now, a good starting point for any parent is to use those life moments to share some key money knowledge. Remember, it doesn’t have to be comprehensive, just relevant and at the right moment, so here goes:

At the ATM

With the rise in contactless payments, the ATM is probably a little less visited these days but that does not mean it is never visited. In fact, it is quite the opposite. We Irish still love our cash and we continue to be one of the highest users of cash across the Eurozone. So, this is a great starting point to share some money knowledge. Just to get the conversation going, a parent, grandparent or guardian should use the moment to explain how the ATM holds the money made by working hard and saving. Be select in your conversation and remember to point out that an ATM is not a magic machine in the wall that hands out money but rather, it is part of the journey your money takes from earning, to saving and finally to spending. Also, point out that as part of this money journey, when you work, more money goes into your bank account and when you spend, more money comes out.

At the supermarket

Again, another great place to have a money chat! For starters, as you walk through the various food aisles, discuss why different items have different prices. Also, don’t forget to explore litres of milk, or orange juice or sodas and compare why some may cost less than others. Ask the child what they think might be the reason for this. Discuss how it is possible to pay less for similar items. Use the shopping time to discuss how to get better value for money by shopping around and comparing prices.

Paying monthly bills

This might be more suited to older kids but it can be used for all ages. So, the next time you receive a utility bill (electricity), use the opportunity to discuss what it is. You can also do this if you receive bills online simply by reviewing them on a mobile or tablet. First, examine the cash amount of the bill. If your electricity bill is for €50, €100 or €150, discuss how long you have to work to earn that money, this will help create the connection between work and income and also, if you want; taxes. Use the time to highlight that for every €100 you earn, €10 or more is taken in taxes.

Doing a spending budget

If your family has never done a yearly family budget, this might be a great reason to start. Budgeting is a central part of a healthy financial situation and key to good money management. So, even if you only manage to sit down once a year to plan out your family finances, include your kids. This will provide them with an opportunity to see all of the income needed to pay all of the bills necessary just to live.

If you plan to take a holiday or even a short break, include kids in looking for the best accommodation deals, or best airline fares. It can be a fantastic opportunity to get them to think about shopping around for value.

Remember, money skills are skills for life that will stand the test of time. If you get your kids hooked on good money habits early in life, it will be one of the best life skills they will have thanks to you!

Frank Conway is founder of MoneyWhizz.org. It teaches better money skills across Ireland in primary schools, secondary schools and with leading employers as a key benefit.

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