Newsletter March 2024

Welcome to the latest edition of our client newsletter,

Our articles cover a range of topics which we hope you will find interesting. We aim to keep you informed of changes as they happen, but we also want to provide ideas to help you live the life you want – now and in the future.

In this edition we discuss “Managing the rising costs of raising kids” and provide you with information on “What’s happening in the Global economy in 2024” and “Saving for your Child’s Future”.

If you would like to discuss any of the issues raised in this newsletter, please don’t hesitate to contact us.

In the meantime we hope you enjoy the read.

All the best,

Planet Wealth

Managing the rising costs of raising kids

It is a special feeling to welcome a new child or grandchild into the world and watch them grow. Sharing their joy as they reach new milestones is priceless.

Of course, there is a real cost – raising a child is expensive, particularly now as the cost-of-living spirals higher. Estimates vary widely from the few studies completed but it is fair to say that over a child’s lifetime families can spend hundreds of thousands of dollars on living, medical and schooling expenses for their children.

So, having a financial strategy in place to cover the costs and taking advantage of government support where available can make a big difference.

Taking care of the basics

The first step is to update your Will to nominate guardians for your children in case the worst happens. You may also consider life insurance and income protection to ensure your family is protected.

Next, a savings and investment plan will help you navigate the years ahead with more certainty. Adding small amounts of money regularly to an account for education and other expenses can help to ease financial stress. The MoneySmart savings goals calculator shows what can be achieved. You could consider fee-free high interest savings accounts or your mortgage offset account as a way to save cash for short-term needs.

Meanwhile, some longer-term investments such as shares, exchange traded funds or listed investment companies may provide financial support for later expenses. They can offer the possibility of capital growth and diversification for a relatively low cost.

Super splitting

Keeping an eye on the future also means thinking about your superannuation. If one partner is staying at home to care for the children, the other partner can split their super contributions with them. You will need to check if your fund allows it, whether they charge a fee and complete some paperwork.

There are also some tax considerations, so it is important to make sure you understand the implications for you.

Government support

Take the time to discover the government payments and supports available for families. For example, the Paid Parental Leave Scheme provides support for mothers for up to three months before the birth.

A recent change to Parental Leave Pay and Dad and Partner Pay sees these two payments combine into one payment that is available to both parents for up to two years after the child’s birth.

You will need to meet income and work tests and claim within certain timelines.

Even if you are not eligible for parental leave pay, you may still be able to apply for both the Newborn Upfront Payment and the Newborn Supplement.

Then there is the Family Tax Benefit, a two-part payment to help with the cost of raising children. To receive the benefit, you must have a dependent child or a full-time secondary student aged 16 to 19 who is not receiving any other payment or benefit such as a youth allowance, care for the child at least 35 per cent of the time and meet an income test.

Grandparent gifting

Grandparents who are keen to help out their families financially can gift money to their children or grandchildren. Be aware that Centrelink has gifting rules for those receiving an age pension. You can give $10,000 in one year or up to $30,000 over five years without your pension being affected. If you give more, the amount will be treated as though you had retained it in your own accounts.

However, gifts and inheritances are generally not considered as income for tax purposes. The ATO says neither the donor nor the receiver will pay tax on a gift if:

it is a transfer of money or property.
the transfer is made voluntarily.
the donor does not expect anything in return.
the donor does not materially benefit.

Tax may apply in some cases where property or shares are gifted.

The joys of raising a little one are many, and having a plan to manage the financial implications can let you enjoy the journey. Get in touch with us to create a plan to secure your family’s future.

Current as at October 2023

What’s happening in the global economy in 2024

AMP Deputy Chief Economist Diana Mousina takes a look at economic trends and what they mean for investors

It’s been a difficult year for the global economy. As you can see in the heatmap below, GDP growth weakened in 2023, particularly in Europe and emerging markets.

Green and red lights for global growth

Source: Macrobond, AMP

But we’re seeing some growth signs, with the composite Purchasing Managers Index trending up since late last year.

So, let’s look in a little more detail at what’s happening in the major economies around the world in 2024.

US | Recession or not?

The US economy was surprisingly strong in 2023 despite higher interest rates. Annual GDP growth in the December quarter of 2023 was 3.3% and the March quarter this year is tracking at 2.9%.

Consumer spending has led the way, with positive contributions from government spending and business investment. Net exports and inventories have detracted from growth.

But there remains a moderate chance of a recession in 2024 as the labour market weakens, with job ads falling and the unemployment rate ticking up.

Meanwhile, inflation has dropped to 3.1% year on year, and we think it will be 2.5% by December as wages growth moderates. This should allow the US Federal Reserve to cut interest rates by mid-2024.

We expect GDP growth to slow to 1.4% over 2024, well below 2023 levels, but not quite consistent with a recession, which is positive for US earnings growth and the share market.

Eurozone | Rate cuts on the cards

Moving over to the Eurozone and GDP growth has barely increased over the past year, ending 2023 at just 0.1%. Weakness is evident across Germany, France and Italy, while Spain is holding up.

Growth has suffered from the slowdown in manufacturing and lower Chinese imports, which have weighed on Eurozone net exports. Inflation has dropped to 2.8% over the year to January 2024, down from a high of 10.6% in October 2022.

We think the European Central Bank will respond by cutting interest rates around mid-year, or slightly earlier. Along with better manufacturing conditions, this should see Eurozone growth improve to 0.9% in 2024.

China | Needs more stimulus…but may not get it

Let’s look at China, where the economy is facing growth headwinds.

Consumer spending has yet to recover from lengthy COVID lockdowns.
The property market is dealing with excess stock, overinvestment and developer problems.
An aging population has reduced workforce productivity and participation.
Chinese shares are down more than 40% since 2021, affecting consumer confidence.

China’s consumer prices are in deflation at -0.8% over the year to January 2024, which weighs on corporate earnings and household wages, and depresses sentiment.

Policymakers have focused on reducing borrowing costs, issuing corporate bonds and greenlighting infrastructure programs. But without further monetary and fiscal easing (particularly for households to increase confidence and encourage spending rather than saving), Chinese growth will remain subdued.

We expect GDP growth of around 4.6% in 2024 and 3% next decade. This is much lower than we’ve been used to – China was growing at around 10% between 2006-10. But given the Chinese economy is more than twice the size it was back then, it’s still making a sizeable contribution to global growth and demand for commodities, which is important for Australia.

Japan | Gently does it…

The Bank of Japan is the last major central bank that hasn’t tightened monetary policy following COVID, with the rate still below zero at -0.1%. Low interest rates have seen the Japanese yen lose more than 30% of its value since 2022.

The pressure is now building to start increasing rates, with consumer price inflation running at 2.6% over the year to December 2023.

But Japan’s historical difficulty in sustaining inflation and recent poor GDP growth (which has seen the country enter a technical recession) means the Bank of Japan will tread carefully. We see only 10-20 basis points of rate hikes likely this year.

What this means for investors

This year we see global GDP growth (which tends to average 3% over the long term) running at 2.5% after 3.1% in 2023 – see the chart below.

World GDP

Source: IMF, AMP

The International Monetary Fund is a little more optimistic, estimating 3.1% for 2024 and 3.2% for 2025.

Despite slower GDP growth, a global recession is unlikely in 2024. This is good news for earnings, and we expect share returns of around 7%. Lower inflation will allow many central banks to start cutting interest rates later this year, making way for stronger growth in 2025.

Geopolitics always matter for investors, but in 2024 even more so as around half the world’s population will have an election, which can cause uncertainty and volatility in share markets. The US Presidential election in November could potentially impact US fiscal policy (and how that translates to bond yields) and US trade policy (especially relating to China).

Geopolitical issues can also disrupt commodity prices and transport costs, which could impact inflation and delay rate cuts in 2024.

Current as at Mar 2024
This article has been written by Diana Mousina, Deputy Chief Economist at AMP.
Important note: While every care has been taken in the preparation of this document, neither National Mutual Funds Management Ltd (ABN 32 006 787 720, AFSL 234652) (NMFM), AMP Limited ABN 49 079 354 519 nor any other member of the AMP Group (AMP) makes any representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. This document is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

Saving for your child’s future

As every parent knows (even before they become one), raising a child isn’t cheap. And those expenses don’t necessarily stop once they reach 18. Parents often hope to help their adult children with significant financial milestones in life too.

We look at some of the main expenses for parents, how you can start saving for your child’s future and the different ways to go about it.

What do you need to save for?

Education

Probably the biggest single expense parents think about is education. In 2023, 16% of students across Australia were attending an independent school according to the ABS.¹ And with the national average cost of having a child in a private school for 13 years starting in 2024 is $316,944 – or $24,380 a year², it can pay to start planning early.

Weddings

Granted, not everyone will get married. But with the average cost of a wedding sitting between $36,000 – $51,000³, it’s no small expense. Couples might find themselves having to choose between paying for a wedding or saving for a house deposit, so a monetary contribution from the parents is often gratefully received.

House deposit

Helping adult children with a down payment on their first home is something 32% of parents are doing, a 2020 report from Mozo revealed. And they’re gifting an average of $73,522.⁴ It could be something to consider when saving for your child’s future.

Unexpected costs

Life is not always plain sailing. Parents can find themselves helping grown-up children with unforeseen medical bills, periods of unemployment, meeting mortgage payments or dealing with the financial aftermath of a divorce or separation. Putting money aside for unplanned costs can mean you don’t have to dip into your savings or end up working for longer.

When should I start saving for my child’s future?

In most cases, the earlier the better. The sooner you start planning for future costs, the more time you have to save, and potentially benefit from things like compound interest – where interest is paid in regular intervals, building on top of earlier interest paid.

Once you’ve worked out how much you need to save and by when, the next step is to understand your current position.

What’s a good way to save money for my child’s future?

It depends on your financial situation, how long you have to save or invest, the level of risk you’re comfortable with and if you want to have the option of being able to access your savings at any time.

Here are some options you could consider. When weighing up what’s right for you, remember to take into account all fees, charges and costs.

Savings accounts

For time-poor first parents, a regular or high-interest savings account could be a good place to start. Set up regular, automatic payments and keep it separate from your other current or savings accounts, so it doesn’t get accidentally used for something else. Then when you’re ready to do some research, you can think about another option for those savings.

Things to consider

Generally, you can access the money whenever you need.
There may be minimum or maximum deposit and withdrawal limits.
Low-interest rates can equal low returns.

Term deposits

This option offers guaranteed interest rates, provided you save your money for a set period. With a term deposit, you won’t be able to access the money ahead of time without incurring a fee, so if you think you’ll be tempted to dip into the savings at any time, it’s one to reconsider.

Things to consider

Your money will be locked away for an agreed period.
There may be minimum or maximum deposit limits.
It’s likely you’ll have to pay a fee if you want to access the money sooner.
Low-interest rates can equal low returns.

Growth or investment bonds

Depending on your financial situation, a growth or investment bond could be a tax-effective way to save for your child’s future. They let you invest on behalf of a child (or a grandchild). Ownership of the bond is then automatically transferred to the child at a date in the future, set by you.

Things to consider

Your money will be locked away for an agreed period, usually a minimum of 10 years.
There may be minimum or maximum deposit limits.
You’ll need to think about tax implications
The expected rate of return.

Education saving plans

Some providers offer savings plans specifically designed for education. There might be potential tax benefits, and they often have features designed to maximise education savings depending on which stage of schooling you’re saving for.

Things to consider

Depending on the plan, your money could be locked away for an agreed period.
There may be minimum or maximum deposit limits.
You may need to pay a fee to access the money early.
There could be tax implications.
The expected rate of return.

Family trust

A family trust may be a suitable way to save for your child’s future. How the tax benefits may compare to other options depends on the ages, taxable income and number of family members in the trust. Generally, you’ll need a financial adviser or accountant to help you set it up.

Things to consider

There can be significant costs to establish a family trust.
There are strict guidelines and rules set out by the ATO.
Tax treatments are complicated and will require the help of an accountant or financial adviser.

If you’re a parent who wants to save for your child’s future, we can help you with an appropriate approach to provide for their future needs.

Current as at Mar 2024
1 https://www.abs.gov.au/statistics/people/education/schools/latest-release#students
2 Private school fees in Sydney are highest, and parents nationally are paying nearly as much in extra costs as they do in tuition fees (afr.com)
3 Moneysmart
4 https://mozo.com.au/home-loans/articles/bank-of-mum-and-and-dad-report-2020

Planet Wealth

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