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Financial literacy is a fundamental life tool. Teaching our kids about financial management from a young age should be a high priority as this is now recognised as an important stepping stone to financial success.

Fortunately, secondary school teachers now have access to free teaching resources through not-for-profit organisations such as the Financial Basics Foundation. These resources can help students become well-equipped to make informed financial decisions and fight spending temptations; better enabling them to set and reach their financial goals.

What is the Financial Basics Foundation?
The Financial Basics Foundation is an independent charity that provides free financial literacy teaching resources to all Australian secondary schools, some charities and registered training organisations. The Foundation’s vision is

“Helping to ensure that all young Australians leaving the secondary education system have an understanding of the credit system and financial management practices, so that they can make informed decisions on their financial affairs”.*

To access the Foundation’s educational resources, secondary school teachers follow a simple online registration process found here: http://www.financialbasics.org.au/register . The complimentary teaching resources include ‘Operation Financial Literacy’ and ‘ESSI Money’.

Operation Financial Literacy

Operation Financial Literacy is a flexible teaching program that provides students with a comprehensive understanding of the most important financial concepts relevant to everyday life. It consists of the following 12 modules:

1. Goal Setting.

2. Income.

3. Budgeting.

4. Insurance.

5. Credit.

6. Taxation.

7. Banking.

8. Investing.

9. Financial Planning.

10. Mobile Phones.

11. Scams.

12. Smart Online Shopping.

ESSI Money

ESSI Money is an online game simulated over a period of six months. It is designed to teach students about financial literacy through ‘virtual reality’. Students undertake a series of financial challenges within a fun and stimulating environment.

Some of the financial concepts taught throughout this game include:

E – Earning: employment, Centrelink and investment returns.

S – Saving: bank accounts, cash and financial goals.

S – Spending: everyday living expenses, mobile phones, credit and credit cards, buying a car, insurance and online shopping.

I – Investing: scams, risk vs. return, and investments such as shares.

In addition to these concepts, students are taught the importance of budgeting and goal-setting, and seeking financial advice from qualified professionals.

Teachers can monitor the progress of the game and provide their own incentives or rewards for the best performers at the end of the game.

Where to start

If you would like your children or grandchildren to learn more about the concepts provided by the Financial Basics Foundation we strongly encourage you to contact your child’s secondary school or speak to a relevant teacher and give them a copy of this article.

If you are an Australian secondary school teacher, you can register to become a member free-of-charge through the website link provided.

If you are not eligible to register as a member of the Financial Basics Foundation, you can still access the Financial Literacy in Practice (FLIP) activities here http://www.financialbasics.org.au/flip.aspx at no cost.

* Reproduced with the permission of the Financial Basics Foundation

Financial Literacy for our CHildren

It’s the middle of the night and you’re jolted awake by extreme pain in your chest. You feel like the life is being crushed out of you … you immediately realise you’re having a heart attack. Your partner frantically phones 000 and as you lay clutching your chest waiting for the ambulance to arrive all you can think about is how your family will be supported if you die.

The pain intensifies.

Hopefully this will never happen to you, but what if it did? Take a moment to think about how your family’s living expenses would be met if your income stopped tomorrow.

The average Australian household spends up to one-third of its gross income on mortgage repayments. Most of us would rely on our regular income continuing indefinitely in order to meet such an expense. And at this point we haven’t even put food on the table.

Income protection (or “salary continuance”) insurance usually provides up to 75% of your salary or business income in the event that you cannot work due to illness or injury. Of course, you might have sick leave, other compensation arrangements or perhaps a cash reserve to rely on for a while, but what happens when these run out? >Transfer the risk

Just like any other insurance, protecting your income is about transferring risk to someone else. By paying a monthly premium, you have the security of knowing that should anything happen – your car is stolen, your home damaged by fire or you suffer a serious illness or accident – your financial loss will be minimised.

Around 83% of Australians consider the cost of car insurance worth having the cover, yet only 31% of employees insure their income.

And what about the apparent contradiction that when you buy insurance you hope you never actually have to use it? Does this mean it is a waste of money?

Why take that risk when having peace of mind is worth far more than dollars? Once you have insurance in place, you can get on with enjoying life, and if you do get sick or badly injured, money will be one less thing to worry about.

Lady on tracks

With help from the internet, a new business model is quietly turning millions of ‘average Joes’ into entrepreneurs.

• Uber is connecting riders with drivers through apps.

• Airbnb is connecting hosts with travellers looking for a place to crash through its website.

• Zopa is connecting lenders with borrowers through its peer-to-peer lending service.

Many individuals are unlocking the value of their underutilised resources by sharing them with others in exchange for a benefit – both monetary and otherwise – giving us the term ‘sharing economy’.

The sharing economy encompasses a broad variety of services. You can earn extra cash by renting out your spare room, car or space in your garage; car-pooling; being a personal tour guide; running errands for people who are time-poor; or you can trade your clothes or play swapsies with your house. The opportunities are endless.

The concept of the sharing economy is not simply the matching of supply and demand like traditional economic theory, but rather the renting, sharing and collaborative consumption of underused assets in which also involves an element of trust.

We live in exciting times. This new ‘economy’ is gaining momentum across the world. New sharing businesses are constantly emerging. Some work, some don’t.

As with any new venture, always seek professional advice first. If you are considering taking part in the sharing economy, you should consider the risks involved. As the model is still in its infancy there are many grey areas particularly in relation to regulatory requirements and insurance.

A confusing area for some is the tax implications involved. Although the sharing economy is an unconventional system, it is nonetheless, viewed by the Australian Tax Office (ATO) the same way as a traditional economic system.

Tax implications

Tax law applies to the sharing economy the same way it would apply in a conventional economy. If you are earning an income from renting out a bedroom or running errands, the ATO will expect you to keep records of any income received along with any allowable deductions to include in your tax return.

What about GST?

If your sharing services generate an annual turnover of $75,000 or more, you are required to register your business for GST. Keep in mind that this also includes income from any other enterprise that you might be involved in. (However, it does not include any rental income you receive from a residential property.)

On the other hand, if you are providing a ‘taxi service’ of some kind, you need to register for GST regardless of your level of income. This includes any service where you drive passengers in a vehicle in exchange for a fee.

The ATO has more details on its website. Just type “sharing economy and tax” into your search engine, or contact us on (07) 3223 6000 or info@cbfinancial.com.au for individual guidance through this exciting new landscape.

Uber, Airbnb, Zopa

Can announcement

If there is a good chance you will receive a tax refund this year or through being thrifty you have accumulated some extra cash in your everyday account, try to contain the temptation to splurge or celebrate; instead make it work harder for you. Here are some places you can stash some extra cash that will pay off in the long run.

Reduce your debts. As boring as it might sound, this is the best way to earn more on your extra cash. Focus on any high-interest loans such as credit cards and personal loans you have. While you’re at it, set up additional monthly payments towards these debts – even a few extra dollars each month will put more back in your pocket.

Special savings. Do you have a special goal such as an overseas holiday or wedding? Use your extra cash to open a separate bank account that earns higher interest and set up a monthly automatic transfer from your everyday account. It will quietly grow behind the scenes and be ready for you when you need it.

Invest it. Use your lump sum to set up a managed investment then make regular contributions to take advantage of dollar-cost averaging. If you’re yet to retire and haven’t already taken control of your superannuation, this might be an even better option for you as it is far more tax-effective. Talk to us for further guidance.

Share it around. You don’t have to be wealthy to be a philanthropist. What is your favourite charity? Or share it between a few needy organisations of your choice. It will not only make you feel good, but you can claim your gift as a tax deduction. You can find more information about planned and tax-effective giving at www.philanthropy.org.au.

Each of these ideas will give you back far more than spending your extra cash on a whim.

Red Umbrella at night in the rain

The attractiveness of superannuation as an investment and savings vehicle is well known. Although the federal government places limits on the amount of tax-effective contributions we can make, the ability to structure insurance arrangements through super remains.

How does insurance through super work?

The types of insurances considered here are limited to those that relate to a person’s life. Specifically, it includes cover for death, permanent disability, temporary disability, and critical illness (trauma).

Rather than owning one of these policies directly, you may be able to arrange for it to be owned by your super fund on your behalf.

Superannuation or personal ownership … what’s best?

The fact that you can hold insurance through your super fund doesn’t mean that in all cases you should. Everyone’s situation is different and it is crucial to seek good advice.

Here are a few key issues to consider

Cash flow: Having your super fund pay your premiums can free up some of your cash flow for other pressing needs. But don’t forget that the super fund deducts the premium from your account, so you’ll eventually pay for it through a lower retirement benefit.

Flexibility: Your super fund probably offers one insurer only and the beneficiaries of the policy are limited to those allowed under superannuation laws. Personally held policies allow you to shop around for the best deal, and you have more flexibility to choose who to leave the money to.

Tax: Super funds can claim a deduction for premiums on death and permanent disability insurance held for their members (usually not available for these policies if held personally). However, tax issues are more likely to arise when these benefits are paid through a super fund in the event of claim.

On the other hand, income protection insurance premiums are deductible when the policy is either held directly or in a super fund. If your marginal tax rate is higher than a super fund’s, then the tax benefit will be greater if the policy is held personally.

Premium rates: Your super fund may have arranged “group insurance” rates that are cheaper than individual policies. Also, some insurers have “automatic acceptance” limits through super policies that give you access to a certain level of cover without medical checks.

Payment rules: When claiming on insurance through a super fund, it is necessary to meet the insurer’s policy rules as well as the super fund’s rules and relevant legislative requirements. This is particularly important for disability and critical illness policies, as the money may be tied up in super until you retire depending on your super fund’s rules. Lump sum payments paid from a TPD policy held within a super fund cannot be made to the beneficiary unless and until that person satisfies a condition of release as defined in the legislation. This all but rules out the use of ‘own occupation’ TPD policies within super.

In some cases, it can be wise to have some insurance inside super and some outside. The best option for you will depend on your personal circumstances, so be sure to be in contact with us when considering any changes to your insurance arrangements. You can call one or our advisers on (07) 3223 6000 or email us using info@cbfinancial.com.au.

4 Steps to live a long, happy, healthy life

Research into healthy living has provided four easy steps to add up to 14 more years to our lives – healthy years.

British researchers surveyed 20,000 people over an eleven year period and asked them about their lifestyles. They gave them one point for each of the following behaviours they did daily:

1. not smoking

2. drinking moderately

3. exercising

4. eating five servings of fruit and vegetables

They then compared people who scored “0” to those who scored “4.” The difference was amazing – people who scored “0” were four times as likely to die over the period. That means those who score “4” could expect to live 14 years longer than those who score “0”.

However, not all scores are equal. Not smoking accounted for about 80% of the benefit. The second best habit was eating fruit and vegetables. But just because you don’t smoke, doesn’t mean you can ignore the rest. People who scored “2” were twice as likely to die over the period.

How to live 14 years longer

These are the four steps to follow for that extra 14 years.

Step 1 – Start by not smoking (and quitting if you do).

Step 2 – Eat more fruit and vegetables — at least five servings of a variety of colours and types a day.

Step 3 – Drink in moderation. People in the survey who had more than two drinks a day increased their risk of an earlier death

Step 4 – Add exercise to your day.

Why does this work?

These four habits help prevent lung cancer and respiratory illnesses, help your heart and cardiovascular system, and provide nutrients that the body needs to make repairs and maintain health. They also reduce your risk for cancer and heart disease – the top killers.

The bonus benefit

These four habits will not just contribute to a longer life. You’ll have more energy, you’ll sleep better, and your mood will improve. If that sounds better than what you’re experiencing now, maybe it’s worth a go!

Please note : General Disclaimer Warning

The information provided in this bulletin is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information, having regard to your objectives, financial situation and needs.We can assist you in determining the appropriateness of any product or information mentioned in this bulletin. You should obtain a Product Disclosure Statement relating to the products mentioned herein.

Secure your assets with estate planning

 

The busier we get the more we tend to put off the important things. Often the last thing we want to think about is our will or other estate planning documents such as a power of attorney. Sometimes that’s not our fault, especially if there has been a crisis or major change in our lives.

If you or your family have recently (or not so recently) undergone a major life change, you need to update these important documents. A will should be reviewed every three to five years, or when circumstances change to ensure it still meets your needs.

If you have experienced any of the following it’s time to act.

1. Marriage/Remarriage

Any existing will is automatically revoked by a marriage or new de facto relationship.
For second or subsequent marriages, things can get complicated. Children, families and assets can create challenging estate planning situations.

2. Family additions

A good will anticipates future children and grandchildren, but you need to review any particular gifts, testamentary trust or guardianship arrangements to ensure the provisions remain current.

3. Divorce

Separation will not revoke your will so it will remain in effect until you divorce. Depending on the state in which you live, your will is either revoked upon divorce or the section referring to your former spouse becomes null and void. As divorce is a major life change, you should seek professional advice as soon as possible.

4. Adult children

Marriage, separation, divorce, bankruptcy or a new business venture can each have implications for a gift left to an adult child. Would any of these affect your adult children differently?

5. Inheritance

Suddenly receiving a considerable inheritance in the form of money or property may change the way you want your estate to be distributed.

6. Executor

Your will doesn’t just involve you – if your executor is unable to handle the responsibility through illness or death, or you simply wish to appoint a different or additional person, make that change before you forget.

7. Retirement

As one of the biggest changes in life, retirement often instigates considerable estate planning changes. As soon as you have settled your finances for this next stage, review and change your will.

Don’t keep putting this in the “too hard basket”.

We can help you manage change and plan for the future so that you can get on with living life. We are a phone call way on (07) 3223 6000 or email info@cbfinancial.com.au

Please note : General Disclaimer Warning

The information provided in this bulletin is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information, having regard to your objectives, financial situation and needs.We can assist you in determining the appropriateness of any product or information mentioned in this bulletin. You should obtain a Product Disclosure Statement relating to the products mentioned herein.

There are many things in life that you can DIY (do-it-yourself) – and there are also many that you cannot (or at least, really, really shouldn’t). One of the things that should not ‘DIY’d’ is the Will.

Even though you can go and buy a DIY Will Kit from the post office or a news agent, unless you are an expert in Wills yourself you really cannot rely on these, for at least the following reasons:

1. At best, they are only good for a “simple Will”. What that really means is a simple family situation, where you are a couple or single person with only a few beneficiaries and you all live in absolute harmony, possibly owning your own home and otherwise you only have limited and straightforward possessions, such as some household goods and a few bank accounts. So if you were able to time-warp yourself back to the 1950’s, you might be okay. But the moment you have something else (such as superannuation – and these days that’s everybody!) then the Will Kit won’t be enough.

2. Plus, families will have no way of really knowing if the DIY Will is suitable for you, because there is no advice. Sure, there may be lots of information provided with the kit, but how do you apply it? And how do you even know if it is correct?

3. There is also the issue of how good the kit is in the first place. You can be guaranteed that it has not been prepared by an “expert” (even if it says so on the packaging) – because a real expert would never let anyone do their own Will using a Will Kit!

4. Even if you managed to put a “proper” Will together, there is the big issue of getting it signed correctly without legal assistance. The Courts are littered with cases of DIY Wills that were not signed correctly and the resulting problems of beneficiaries fighting for control of the estate.

5. Finally, at the end of the day you have to acknowledge that “you don’t know what you don’t know”. Without the help of a properly qualified and experienced advisor, you may not realise the issues that you are missing in your “simple” family situation – how to deal with non-estate assets such as superannuation or assets held jointly (especially your own home) or a family trust; children or other beneficiaries with special needs, or who are still young when you die; families with second spouses and children of previous relationships; and so on.

If you have any concerns about your Will, please be in touch with us we can help put in place the safe guards you may require. Don’t be tempted to save a few dollars now with a DIY Will Kit, because you may end up risking your entire estate later – and at a time when your family can least afford it!

Treasurer Joe Hockey handed down the 2015/16 Federal Budget last Tuesday night.

Many of the proposed changes will affect young families, small business, retirees and women.

This FAQ document is designed to help you understand the key Budget measures around the social security, tax, superannuation and child care.

It’s important to note these measures must be legislated and passed through Parliament before they apply.

 

Q: What are the key Budget measures?

  • A childcare package, designed to help parents who want to work or work more.
  • Small business tax rate cuts and small business accelerated depreciation changes.
  • Changes to the Pension Assets Test Threshold sand Taper Rate to make the pension system more sustainable and boost the number of fully self-funded retirees.

Q: Can I still get the pension?

It will depend on the amount of assets you own, on top of the family home. There are major changes to the Pension Assets Test Thresholds which will see wealthier retirees lose access to a part pension or have their benefit reduced.

On the other hand, many retirees will see no change to their pension entitlement or a slight increase.

 

Q: What are the changes to the Pension Assets Test Thresholds and Taper Rate?

The Pension Assets Test Thresholds for a part pension will be slashed to $823,000 from $1,151,500 for home owner couples and to $547,000 from $775,500 for home owner singles.

As a result, approximately 91,000 retirees will lose access to a part pension and become fully self-funded retirees. A further 235,000 will have their pension reduced.

Conversely, the lower Pension Assets Test Thresholds for the full Age Pension will increase to $250,000 from $202,000 for single home owners and $375,000 from $286,500 for couples who own their own home from January 2017.

Basically, a retired couple who own their own home can have up to $375,000 in investments and still qualify for the full  Age Pension. Similar changes apply to non-home owners.

Around 50,000 part pensioners qualify for  a full pension after these changes.

 

Q: Are there any changes to superannuation?

Superannuation emerged from the Budge in tact. There are no additional super taxes and no change to contribution caps.

The government promised not to make any significant or negative changes to super and it kept that promise.

Members of a public sector or corporate defined benefit superannuation scheme may be affected by changes to the way defined benefit income streams are counted against the social security income test, apart from that the only notable change to super is an extension of the Terminal Medical Condition Periodto24months.

Currently,you cannot access your super until you’ve reached preservation age unless in special circumstances such as severe financial hardship or terminal illness.In the case of a terminal illness or injury, you must obtain a medical certificate certifying that you’re likely to die within 12 months.

Extending the period to 24 months will make it easier and quicker for the terminally ill to access their superannuation money.

 

Q: How does the Budget impact on wealth accumulators and high income earners?

There isn’t a lot in the Budget specifically targeted at wealth accumulators or high net worth individuals although many will benefit from generous tax cuts for small business and a multi-billion dollar childcare package.

There was some speculation ahead o Tuesday night that the Budget would seek to clamp down on Australia’s $29 billion system of franking credits for investors, however, there were no changes to the franking credit rate.

 

Q: What are the key measures in the ‘Jobs for Families’ childcare package and will they apply to me?

Low to middle-income families will benefit from the government’s flagship childcare package while higher income families will be relatively unscathed.

A simplified means-tested childcare subsidy will be introduced from Jul y2017 which will see families earning between $65,000 and $170,000, around $30 better off a week.

The new childcare subsidy will replace the Child Care Benefit, Child Care Rebate, and Jobs, Education and Training Child Care Fee Assistance (JETCCFA). It will be paid directly to child care providers which will dramatically lower the upfront cost of child care.

Families earning up to $65,000 a year will receive 85 percent of child care fees.This is reduced to 50 percent for families earning $170,000 or more.

Families earning less than $185,000 per year will no longer have a cap on the subsidy they receive. If the family’s income exceeds$185,000 a cap of $10,000 per child per year applies.

 

Q: Outline the small business tax rate cuts and accelerated depreciation of individual assets.

Small businesses, with an aggregated annual turnover under $2million,are set to receive a 1.5 percent tax cut from 2015/16. If legislated,the company tax rate will fall to 28.5 percent, representing the lowest level in almost 50 years.

Small unincorporated businesses, with an aggregated annual turnover under $2million (such as sole traders and partnerships),will receive a 5 percent discount on the tax payable on their business income,up to the value of $1,000 per person per year. Also included in the Budget’s small business package are accelerated depreciation changes, an immediate deduction for small business establishment costs, capital gains tax relief for restructures and minor changes to employee share schemes.

Under changes to the accelerated depreciation of assets, small businesses will get an immediate tax deduction for any individual assets they buy costing less than $20,000. The threshold currently sits at $1,000.

This $20,000 limit will apply to each individual item and can be applied to an unlimited number of items.

 

Q: What will I pay more for under the Budget?

Depending on how much you earn and how much you work, you could be slugged with higher child care costs.

Families earning over $65,000 a year with  a non-working stay-at-home parent stand to lose access to child care subsidies, under tougher work rules which require both parents to work at least eight hours a fortnight, or any other approved activity, in order to qualify for child care subsidies.

Furthermore, if you download anything from the internet, such as movies and songs from iTunes, Netflix or Google Play chances are you’ll have to pay GST from July 2017.

 

Q: What happens next?

These measures, must be legislated and passed through Parliament before they apply.

If you think you might be affected by some changes, you should call us on (7) 3223 6000. We’ll be happy to help.

 

From 1 July 2014, the superannuation contribution caps have increased, allowing an opportunity to place more money in superannuation going forward. The contribution caps control the amount you can place into superannuation each year without facing penalty tax. If you are at least 50 you have higher contribution caps.

There are two contribution caps – the concessional contribution cap and the non-concessional contribution cap.

The concessional contribution cap limits the amount of contributions to superannuation that are made from pre-tax income. This includes super guarantee amounts paid by your employer, salary sacrifice amounts and tax-deductible personal contributions.

The non-concessional cap applies to contributions made to superannuation from after tax income such as your after tax salary and wages or savings. It can also come from transferring a limited range of investments you own, such as listed shared, to your SMSF.

The changes to the contribution caps are:

People aged 50 and over

The concessional contribution cap for those aged 50 or over has increased to $35 000 from 1 July 2014. You are eligible for the higher contributions cap if you are 49 or over on 30 June just before the financial year commences.

General concessional cap

The general concessional contribution cap, which applies to those under age 50, has increased to $30,000 from 1 July 2014.

The non-concessional contribution cap for a financial year has also increased to $180,000 as it is six times the general concessional contribution cap. The increase in the non-concessional cap means that the three year ‘bring forward rule’ has increased to $540,000 from 1 July 2014. The bring forward rule allows people aged under 65 to access a non-concessional cap of $540,000 over a fixed three year period commencing once you have made non-concessional contributions of more that !180,000 in a financial year. This can allow you to contribute large amounts to superannuation in a short period.

Contributing more to superannuation will help your retirement savings grow, and in some circumstances, reduce the amount of income tax you pay. Here is an example:

Mary, aged 55

Mary is aged 55 and earns a salary of $91,300 per year. Ordinarily, Mary’s income tax liability (including Medicare levy) for the 2014-2015 year will be $23,563.

Mary’s employer is required to pay $8,673.50 in Superannuation Guarantee payments for the 2014-2015 financial year which is 9.5% of her salary. With the increased concessional cap, Mary can salary sacrifice $26,326.50 into her SMSF ($35,000 – $8,673.50). She will not pay income tax on the amount paid to superannuation. By salary sacrificing to superannuation, Mary’s income tax liability would reduce from $23,563 to $13,947.

(It is important to remember that Mary’s concessional contributions will be taxed at 15% in her superannuation fund.)

If you need assistance with any aspect of making contributions to superannuation, please call us on (07) 3223 5000 or email advisersupport@cbfinancial.com.au so that we can discuss your particular requirements in more detail.

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