Insights
In this issue
- When enough is never enough
- How financial institutions can lead the way in digital trust for 2025
- Yours, mine & ours – estate and succession planning for modern families
The warmer weather and spring rains are a welcome break from the colder months. And, while outside activities become more tempting, don’t forget to find a moment or two to review your finances to make sure you’re up-to-date and on-track.
Household wealth has increased for the third quarter in a row. It rose by 2.6% in the June quarter, pushed up by rising house prices and increases in superannuation balances. Meanwhile demand for credit was the lowest since 2005. But consumers are not spending and consumer confidence is down. Retail sales growth was the slowest since the pandemic lockdown.
While the number of job vacancies have fallen by about 18% since their peak in May this year, they are still around 72 per cent higher than just before the pandemic – that’s an extra 160,000 positions that employers are looking to fill. Unemployment was unchanged at 3.7%.
The Australian dollar rebounded a little to finish the month where it began but it’s ended the quarter about 3% thanks to surging oil prices, interest rate uncertainty and the US markets.
Brent crude has continued its relentless climb since June, ending the month just over 30% higher than three months ago. That’s pushed petrol prices ever higher – about 17% over the same period – with the national average price for unleaded at $2.11 a litre compared to $1.80 in June. Oil prices are expected to continue to increase because of depleted US inventories and cuts to production in Saudia Arabia and Russia. Increasing petrol prices helped fuel a jump in inflation last month.
When enough is never enough
How much is enough? It’s a good question. Our relationship with our finances can be a tricky one. Everyone has a different idea of how much it takes to be comfortable or even well off.
Given it is something that has such a strong influence on how we live our lives it’s unsurprising that money, or the pursuit of it, can develop into somewhat of an addiction.
The million-dollar question is how do you know if you are developing an unhealthy relationship with money and what can you do if you, or someone you know, is heading down that path?
The love of the dollar
When John D. Rockefeller, who has been widely considered the wealthiest American in modern history, was asked how much money is enough, he famously stated: “Just a little bit more.”
It’s a common approach to money – that it’s not possible to have too much of a good thing. However, we can become addicted to the act of growing our net wealth to the detriment of our daily lives. If you’re only interested in seeing your account balance go up, you might miss opportunities to put your money to work in other ways and enjoying what life has to offer.
If you can relate to the words of Rockefeller, it might be time to do some self-examination and see whether your relationship with your finances could be healthier.
Common feelings about acquiring money
Competitive
“Keeping up with the Joneses” is embedded in our culture. As a society, we’re constantly comparing ourselves to those who earn more or are wealthier than ourselves. The danger is there will always be someone better off than you (unless you are Rockefeller!). Gratitude can serve as an antidote to competition, so try shifting your focus to what you have rather than what others possess.
Of course, for many the focus is not outward but inward. The competition can be an internal struggle to meet and exceed continually shifting self-imposed financial objectives. If this is moving beyond a healthy drive for success, it might be time to celebrate your successes and focus more on enjoying your wealth.
You are what you possess
Compulsive saving can be a need to find self-worth, defining yourself by what you possess and accruing the trappings of wealth to feel whole. Recognising your self-worth goes beyond possessions and how much money you have in the bank is a key step in breaking the hold money may have over you.
Fear of loss
Being afraid of losses can keep you from making smart decisions with your money that could improve your financial situation. For example, you might be so fixated on accruing wealth and so afraid of losing money that you never invest. Having an appreciation of the relationship between risk and reward can help you make healthier decisions.
Scarcity mindset
An extreme focus on your financials can be driven by a fear of not having enough. The underlying cause of anxiety around money might be traced back to a time when you struggled. The key is to review your financial situation and let go the past to manage your finances in a way that is appropriate to your present circumstances.
Breaking money habits
That sounds easy but it can be difficult in practice. Whatever the driver of your approach to money, if you’ve been operating in a certain way for a long time, habits can be hard to break.
If you’ve been saving furiously for a home deposit it can be hard to step out of the frugal behaviour, take a breather and feel Ok about spending money again. Alternatively, if you’ve spent a lifetime building your wealth to have a wonderful retirement it can be difficult to flick the switch from saving to spending – especially if you suddenly have no wages coming in.
Recognise that old habits can be hard to break but that it is possible to change.
One thing that can help is having a financial plan, so you know how you are tracking to meet your financial goals. That’s where talking to a third party who is not so emotionally involved can be of benefit.
We are here to assist if you need assistance with any aspect of your financial life.
How financial institutions can lead the way in digital trust for 2025
As the financial services industry increasingly transitions to digital platforms, the establishment of trust is becoming a vital component for achieving success.
The views presented herein are solely those of the authors and do not necessarily represent the opinions or positions of UK Finance or its members.
The report titled The Future of Digital Trust: Establishing the Foundations for a Resilient, Efficient, and Safer Online World, developed by LexisNexis® Risk Solutions in collaboration with market research specialists Savanta, examines the importance of cultivating digital trust as a critical objective for 2025.
Drawing from interviews with 30 senior executives in the banking, payments, and telecommunications sectors, the report highlights essential themes, including the need for resilience in transitioning from outdated technology, the growing importance of collaboration, and the significant challenges posed by customer transparency issues in building trust. Legacy Technology: The Vulnerability in Digital Trust
According to a respondent in the report, one of the primary obstacles to establishing digital trust is the extent of legacy technology that hampers progress. Outdated systems frequently compromise security and diminish customer experience, rendering financial institutions susceptible to fraud and a decline in trust. For numerous banks, the financial burden and intricacy of replacing legacy systems hinder modernization efforts, despite the pressing necessity for such changes. This report outlines strategies for engaging technology vendors to mitigate these issues.
Collaboration as a Driving Force
The report emphasizes collaboration as an essential approach to tackling the challenges of digital trust, particularly concerning fraud and identity verification. Federated trust systems and shared fraud intelligence networks enable banks to consolidate resources and bolster customer security. Nevertheless, apprehensions regarding data sharing and competitive threats continue to pose challenges. Innovative methods such as tokenization present a viable solution, facilitating secure and compliant data sharing. This report elucidates the significance of collaboration as a fundamental element in successfully addressing these challenges in the future.
Where are rents headed?
Will rents continue to rise or stabilise? Experts’ views are mixed about the short-term outlook for the rental market.
The Reserve Bank says the continuing shortage of rental housing is likely to support ongoing increases in rents.
The rents paid by new tenants provide a good indication of price movements in rental housing. Actual rents paid by new tenants increased by 14 per cent over the year to February 2023. Since the onset of the pandemic in 2020, rents paid by new tenants have increased by 24 per cent.vi
But CoreLogic predicts a slowing in rental price growth next year, saying rents rose for the 35th month in a row in July but monthly growth has eased over the past four months. It says the expected drop in interest rates next year combined with softer income growth and stretched rental affordability will contribute to a slowing in rents.
Blended families
If you have been married more than once and/or have children with more than one partner, your will helps to effectively provide for those you choose.
You may wish, for example, to ensure that your children receive the proceeds of your estate rather than your spouse or ex-spouse. Alternatively, you may need to ensure your will protects your current spouse from the claims of previous spouses.
When it comes to the family home, the type of home ownership is important. If you have purchased as ‘joint tenants’, the entire asset will pass to the surviving spouse. On the other hand, if you have purchased as ‘tenants in common’, each spouse can distribute their share of the house to others.
You may also wish to include a ‘life interest’ in the home so that your current spouse can continue to live in the home until their death before it ultimately passes to your other beneficiaries.
Trusts
Any existing family trusts should be reviewed with a blended family in mind. Check that the trust deed provides clear instructions for succession, if you want to ensure your children from past relationships are catered for.
Your will can also establish new trusts, known as testamentary trusts, to provide for any dependents with disability, when you are worried that a child may waste or misuse your assets, or to allow for young children.
A testamentary trust can also help to protect your adult child’s interests if they were to divorce a partner or are facing bankruptcy. Any inheritance they receive from you would become part of their property and can be considered in a divorce settlement or called on by creditors.
Handing on a business
If you are in business with partners, or would like to hand on the family business to one child but not others, a life insurance policy may be a useful strategy – sometimes known as estate equalisation – to even the distributions from your estate.
In the case of a business partnership, you would name your partner or partners as beneficiaries of the life insurance policy, to effectively ‘buy you out’ of the business. Where it’s a family business due to be handed on to one child, your life insurance would go to your other children to match the value of the business.
Note that it is crucial to continually review the value of the business and the value of the life insurance to ensure they remain current.
Estate planning can be tricky and emotional, particularly when your circumstances are a little more complex. So, get in touch with us to ensure your estate plan meets your wishes and takes account of all the issues.