Why financial literacy should be in Aussie schools

Maths and physics are important, but financial literacy doesn't need a semester. I could teach the basics in an hour. Once you've got the principles, applying them is simply a matter of staying on course.

This is what I'd say to a class of high school students if given the chance. Welcome to the world of financial independence. Right now you own something Warren Buffett, for all his billions, can never buy: time. Time is your secret weapon. It lets you harness the magic of compound interest, the most powerful wealth-building force, available the moment you start investing.

So how does it work? Compounding means you make an investment, and you don't spend the earnings - you keep them with the original money, re-investing them both. Each year your capital base grows, producing even more earnings the next year. Eventually your money is working harder than you ever could, earning interest on interest until it snowballs beyond imagination. That's the point where money starts working for you, not the other way around.

Think about Kerry and Alex, both aged 15. Kerry gets the message and immediately starts investing $2,000 a year into an index fund, continuing until the age of 30 before stopping to buy a house. Alex delays until 30, then invests $2,000 a year without fail right through to 65.

Who's better off at 65, with a 9 per cent return? The surprise winner is Kerry, who invested just $30,000 and finished with $1.2 million. Alex contributed more than twice as much - $70,000 - but ended up with only $430,000. That's the magic of starting early and letting time do the work. So let me ask you: who would you rather be?

Before you can invest, you need to earn. One of the best moves is to get a part-time job early. When you earn your own money, you learn independence, responsibility, and discipline. You discover how to turn up on time, serve customers, and be relied on. You realise money doesn't just appear-it's exchanged for effort and skill. The earlier you learn this, the better prepared you'll be.

Most people who become financially secure follow one golden rule: never spend more than you earn; always save a little. It sounds simple, but the habit is what matters. At first it's not how much you save, but the discipline of saving something. Habits compound just like money, and over time the saver always beats the spender. That's why buy-now, pay-later schemes are so dangerous: they mortgage tomorrow's income for today's wants. Do you really want to trade your future for something you don't need right now?

The next principle is to set goals. Without them, it's easy to drift through life. When you write goals down, you turn vague wishes into concrete plans. Goals give direction, motivation, and purpose. They keep you on track when distractions come, and remind you why you're putting money aside-whether it's saving for something special, building a business, or investing.

It doesn't matter if you're 15 or 55, there's always something new to learn. The more skills you gain, the more valuable you become. Your income is the engine that drives wealth. Compounding is powerful, but it's your ability to earn-and to keep increasing your earnings-that fuels everything else.

So here's my message to you: first, never spend more than you earn; second, save something from every dollar; third, start investing young and use your greatest asset - time - to make compounding work for you; and fourth, keep learning. Do those four things, and money will give you freedom, security and choice for life.

Question: You have written that Section 296 proposes a new tax on unrealized capital gains made by superannuation funds with balances above $3 million. I am confused by this. Does it mean that earnings within my pension account - which are currently tax-free - will now be taxed if my total super balance exceeds $3 million?

Answer: Just keep in mind that this is a separate tax based solely on the difference in the valuations of your super fund between 1 July and 30 June the following year. The income and capital gains tax situation of your existing superannuation fund will not be affected by this new tax. They will be taxed as normal, as if the Division 296 tax never existed.

Question: I receive a part Centrelink age pension. Ten days ago, my 49-year-old son-in-law was diagnosed with cancer and is undergoing major surgery. The surgeon required upfront payment of $6,800 a week before the operation. In the shock of the diagnosis, and to spare my daughter and son-in-law financial stress, I paid the surgeon's bill myself. They will reimburse me the $2,400 rebate from their health fund. The anaesthetist's fee was $300, which they paid directly. Will Centrelink treat my payment to the surgeon as a "gift"?

Answer. It may be possible that Centrelink would treat the payments paid -less the amount you got back-as a gift. But in any event, a pensioner may give $10,000 in any financial year with a maximum of $30,000 over five years. Provided you have not been making specific gifts at this level, I don't think you have any problems.

Question: In 2019, I was advised that the maximum allowable in a retirement income stream was $1.7 million, calculated by adding the balance of a market-based pension to 16 times the annual income from a defined benefit pension. My current retirement income stream is well below this threshold. I have both a defined benefit pension and a market-based superannuation pension. I downsized my home three years ago and would now like to contribute some of that cash back into superannuation.

Is it possible to contribute to a superannuation accumulation account at this stage? What are the pros and cons of doing so? One idea I've considered is commuting my existing retirement income stream back into accumulation mode, then starting a new pension with additional funds. Is this allowed or advisable?

Answer: Provided you are under 75 and your superannuation balance was under $1.9 million last 30 June, you are free to contribute to a superannuation accumulation account. Depending on your remaining transfer balance cap space, you may be able to transfer some or all of the new contributions into pension phase. You cannot contribute to an account in pension phase, but many people have both a pension account and an accumulation account. There are few downsides in starting a pension, except for the fact that you are required to make the mandatory drawdown every year. The advantage is that you are keeping that sum in a tax-free environment. Money in accumulation is taxed at a flat rate of 15 per cent per annum, and a major element to look at is what other income you have outside superannuation-such as rents or dividends-that would take you into a higher tax bracket.