The realisation of how hard it is to be a homeowner becomes all too clear when prospective buyers start the process of reviewing their finances, calculating how much deposit is required and what the repayments of a new mortgage are likely to be.
The reality is that you cannot wake up today and say you want to buy a house tomorrow. For most people this is simply not possible, it takes a lot of effort and forward planning.
This article may be of some assistance to the current generation looking to purchase a home, but it is written more for the generation that is leaving school now, and who may wish to purchase a home into the future.
The rock face to purchase a property for these young ones appears to be very steep (and that is constantly reinforced by the media and politicians), but with the right tools, direction, information and decision making, that rock face is certainly scalable.
As a financial adviser of over 15 years, I have been privy to the financial situations of many people. There are certain groups of people that can accumulate and others that seem to be in a continual struggle, no matter what they are earning.
The difference might come down to having the right financial direction & information early in life, taking the time to set a goal, and then making the right decisions along the way, to achieve that goal.
Perhaps not enough young people are being exposed to this type of information or thinking in a way that is meaningful and makes sense to them.
The first step to homeownership needs to be an awareness of personal finances along with the introduction of some of the disciplines that will assist young people to achieve their goals.
Potential homeowners then need to make a ‘decision’ and this needs to happen at a reasonably young age. I think ages 14 – 16 years is a good time to start the conversation.
Why this young? That’s the age when young kids are starting to become aware of money. They need it for entertainment and purchasing items such as clothes, devices, and cars. Often these kids are earning money at this stage and begin to realise that at $16.50 per hour, it doesn’t take long to spend each week’s wages.
After 2-3 coffees, a breakfast here and there along with lunch, movies and the odd tank of petrol, there’s often little if any left.
The decision that young people need to make (around the age of 18) is, “do I want to be a homeowner in the future?”, “or not?”. If the answer is “yes”, then there is a pathway (or simple personal financial management plan) that needs to be followed.
A typical pathway may look something like the following;
- Apply for an IRD number with your child – talk to them about how the tax system works and their role in helping the Gov’t provide services such as education, health, police, social welfare, roading etc
- Open a kiwi saver account with your child and start contributing say $20 per month into their account – they will then receive statements and slowly watch the balance increase
- Open 3 bank accounts with your child – everyday spending, medium-term savings, long-term savings – talk to your child about how to use these accounts and assign spending patterns to each account
- Encourage your child to have a part-time job while still at high school, with p.a.y.e. tax being paid – so they start appreciating the value of money, what they get to keep and what is paid in taxes (refer to what their taxes cover and how they are contributing to the country)
- Encourage your child to opt-in for kiwi saver so the employer pays 3% and the child pays in 3% (or 4 or 8%) – Review their kiwi saver statements and explain how compound interest works, and how the funds can be withdrawn to assist with homeownership)
- Teach your children to save to buy (anything), don’t borrow to buy i.e. car finance, credit cards, HP, personal loans (unless it is income-producing)
- Teach your children to be modest with their purchases (until they can afford not to be)
- Teach your children (over and above kiwi saver), to save 5-10% of everything they earn into their medium-term and long-term savings
The above suggestions might seem a bit onerous but will provide a very good grounding for your children and will teach them the basics of personal financial management.
Whether children stay home, leave home to go flatting, go to university, get a trade, employment of their choice, or head overseas, the decisions that are made over the next 5 to 10 years are critical to their homeownership endeavours.
They need to;
- Continue with their kiwi saver (maybe take a contribution holiday until earning)
- Continue with the 3 banks accounts, every day, medium-term savings and long-term savings
- Continue to save to purchase, don’t use a credit card, and don’t take out HP’s or personal loans.
- Continue to be modest with purchases
- Continue to save (over & above kiwi saver) at least 5-10% of all earnings
If the above personal financial management suggestions are carried out over the next 5-10 years, then there is a good chance that the younger generation will be well on the way to being able to purchase a house, either as a single or with a partner who has hopefully followed the same patterns of personal financial management.
As mentioned earlier, this may be useful to young families who are finding it tough now, and for the generation coming through, it may make the prospects of homeownership seem much more achievable.
If you do BOOK HERE I will simply call at the requested time to discuss how I may be able to help you and see how we can work together. We can then make a time to meet at your office, my office, your home, or a local cafe.