Baby boomers’ housing experience may not repeat
Baby boomers still borrowing to buy property
Over the six years to 2009-10 [1], baby boomers (those born between 1945 and 1964) continued to pour money into both owner occupied housing and other property. And they were happy to take on additional debt to do so.
The table below shows the change between 2003-04 and 2009-10 in the percentage of households, by age of reference person, where the homeowner has a mortgage.
A high income does not imply high wealth
Statistics shows that a high income does not mean high net worth
In our previous article, “Household income and wealth in Australia”, we examined the progress toward financial independence being made by the wealthiest 20% of Australian households, with wealth measured alternatively by household net worth and household gross income. We found that the net worth measure of wealth was a better indicator of current financial independence than was household gross income.
The official statistics [1] on which our analysis was based clearly reveal that a high income does not imply high net worth. In fact, they indicate that only about 34% of households that rank in the top 10% by gross household income also rank in the top 10% by household net worth.
Borrowing to buy property within Super: Buyer Beware!
Just because you can doesn’t mean your should
Borrowing to buy property within a Self Managed Super Fund (SMSF) has been promoted by many within the advice industry as an exclusive opportunity you should seriously consider. And, while there can be occasions where this strategy makes sense, as a general rule the fundamentals just don’t stack up.
Back in 2007, the Government opened the door for SMSFs to borrow. The change was driven by the popularity of investing in instalment warrants (such as Telstra’s T3 offer). These investments had an element of gearing which created some confusion under the no borrowing restrictions of the Superannuation Industry (Supervision) Act. To over come this, the Government decided to remove the borrowing restriction.
Don’t fall in love with your employer
Surely, I’m better off investing in my employer’s shares
Many employees hold shares (and/or rights to buy shares) in their share market listed company employer. The interest may have been acquired as part of their remuneration package or as compensation for sale of a business to the employer. Or, perhaps, the employee was optimistic about the prospects for the employer and bought its shares as an investment.
Often, there are restrictions imposed on dealing in the shares, at least for a specified period after acquisition, so the employee has no alternative but to retain the position. However, even when there are no restrictions, many employees continue to hold and, over time, build substantial (but minority) interests in their employer.
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Employee Share Schemes – Are the proposed changes all bad news?
For many, receiving shares or options from your employer is a welcome benefit. There are usually no immediate tax or cash flow implications and you simply get access to a new investment that, hopefully, will grow in value.
The May 2009 budget proposed changes to the treatment of these benefits which are likely to affect both the issuance and immediate implications of employee share schemes in the future.
Currently, as a recipient of shares or options under an employee share scheme , you get the choice on when to pay tax on the benefit you receive. If you do nothing, you will be deemed to defer the tax until a later date (the “cessation time”). Alternatively, you can elect to pay tax on the discounted benefit upfront by making an election in your tax return.
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