In the last 10-15 years, a new phenomenon has risen in Australia where more and more adult children are living with their parents for a longer period of time. This phenomenon has been given the Acronym 'KIPPERS' by some demographers. This stands for Kids In Parents' Pockets Eroding Retirement Savings.  Many reasons have been given for this cultural change, the fact that more young people go to university than in the past, and that they are now leaving with large education debts, when previously university education was either free or very cheap.  Also, the housing boom of the late 1990s and early 2000s, has made it harder for first home buyers to enter the market than other times in Australian history.

Whatever the reason, there is no doubt that this phenomenon is on the rise.  Before the Global Financial Crisis (GFC) struck in late 2007, this situation was manageable because the baby boomer generation had benefited from the share market and property market boom, and many were in a position to help their adult children out financially. Then, the sharemarket plummeted 55% from November 2007 until March 2009. This was the second largest fall in Australian stock market history, and it did some significant damage to superannuation balances and other retirement savings. With this in mind, it may be time for parents to start looking after their own future needs, and be a little less generous with the 'KIPPERS'.

An element of financial planning that is often overlooked, is what would happen to the older generations if something were to happen to their adult children financially?  When things go really wrong for young people, the first people they look to for help are their parents. Issues ranging from bankruptcy, divorce, premature death or disablement can all have severe impact on finances. 

Imagine if a young family, where Mum stays home and looks after the kids, and a 30 year old Dad goes to work. They have recently bought their first family home and have a $400,000 mortgage to go with it. Dad thinks accident or income protection insurance is a waste of money, so doesn’t bother to get any. Driving home from work on Friday afternoon he's involved in a serious car accident that leaves him paralysed. He can never work again. Who are these people going to turn to for financial help? No doubt, it will be their parents who will step up to help. If this young family had planned ahead, and taken out appropriate insurance cover to help manage some of life’s risks, then neither they nor their families would have the extra burden of financial stress, on top of the substantial emotional and physical trauma of the accident. Often these un-predictable risks can be managed through good financial planning, and it need not be the case that poor planning on behalf of the younger generations, should result in financial ruin on the older generation. Book a consultation with our insurance expert Peter Dale, who will assess your circumstances and your needs, to determine which policy will give you the best value for your dollar.

The earlier you start planning once you start working, the better off you will be in the long run.  As with most things in life, the earlier you start, the less the effort required at the end to reach your goals.  This is the investment equivalent of 'a stitch in time saves nine'.  The reason for this is the compounding effect. That is, interest earned on interest. When you re-invest dividends from shares or interest from bank accounts, these new amounts also earn interest. Initially this amount is small, but gathers momentum like a 'snow ball down a mountain gathers speed, and eventually becomes an avalanche'.

To illustrate, take the following scenario. Four people are given $10,000 to invest in a index share fund which will track the performance of the Australian sharemarket.  They cannot access this money until they are age 65.  The investment is projected to pay 5% dividends, which must be reinvested and 6% capital growth. The four people are aged 25, 35, 45 and 55. Below is what their investments would be worth before tax at age 65, if the investment returned as projected.

Age 25 - $650k :: Age 35 - $228k :: Age45 - $80k :: Age 55 - $28k. So the earlier people start investing, the longer they give the compounding effect a chance to work, and the less effort and risk they will need to take in the years preceding their retirement.

People who are approaching, or are in retirement, need to be realistic and a bit more pragmatic about the financial assistance they give their adult children, given the retirement savings losses they have suffered. Instead of giving cash support, it may be better to educate, or give their adult children access to solid financial advice so they can take control of their own financial affairs. To use yet another cliche, "Give a man a fish and you'll feed him for a day. Teach a man to fish and you'll feed him for a lifetime."

Before Lehman Brothers collapsed in late 2008 and sparked a financial panic, the Australian dollar was headed toward parity with the US dollar. Parity means that one Australian dollar would buy one US dollar.  When the panic ensued, people dumped the Australian dollar and rushed into the US dollar. This may seem confusing as the Australian economy was performing better than the US economy, so shouldn’t investors want to hold our currency? Well the reason our currency fell was that, despite its problems, the US is still the largest economy in the world, and is still viewed as a safe haven when things turn sour.

Since then, the outlook for the global economy has improved and our dollar has rocketed back up to over 93c US, and many pundits, including members of the RBA, expect our exchange rate will again attempt to reach parity with the $US. So why is our currency increasing in value? Here are a number of reasons:

Interest rate differential
The US Federal Reserve has set their cash rate at effectively 0%. The Reserve Bank of Australia has our rate at 3.25%. This reflects the stronger health of our economy among other things.  Because of this large difference, traders perform something known as a 'carry trade'. They borrow money in the US at the low rates, and invest in the Australian currency at the higher rate.  Because more people are buying Australian dollars, the value of them increases.

Quantitative easing
This term is just fancy financial talk for printing money.  The US economy was in such a mess, that the Federal Reserve started effectively printing money to stop deflation (falling prices of assets and goods). Because they increased the supply of US dollars, the value of the US dollars in circulation lost some value. The RBA has not had to revert to this extreme action because our economy is stronger. The Americans printed more dollars, and we didn’t, which helps our dollar increase in value compared to the US dollar.

Resource prices & our links to Asia
Australia is a resource commodity exporter. When the prices for commodities are strong our dollar tends to increase in value.   The massive stimulus packages in China, and their continued strong demand for our resources have caused commodity prices to rise over the past six months. Our dollar has risen in line with these commodity price rises. For these reasons there is a possibility that our currency will again test parity with the US dollar in the next 6-12 months.

What does this mean for us?  Imported electronic goods of the like should become cheaper in our stores, and anyone going to the USA for a holiday should have a very good time at a discounted price.

Andrew MacDonald

from the floor...

Lodging the annual tax return can be a bit of an ordeal these days. There are a million and one rules that seem to change at the drop of a hat. There are rumours circulating in the financial press, that the Henry Review into taxation is considering sparing millions of tax payers from filling in annual tax returns as part of a radical plan to simplify Australia's tax system.

Under the proposa,l taxpayers would receive a one-page summary from the tax office. This page would show what the tax office calculated their income position to be. If the taxpayer is happy with the ATO's calculation, they would simply tick the form and lodge it via the Internet - then wait for their refund.

This system would only work for people with simple tax information, as it would not include investment income and deductions.  Furthermore, there seems to be a new rumour every week about what will be the recommendations of the Henry Review into taxation, and we are just going to have to wait and see what the recommendations are. Treasury secretary Ken Henry is due to deliver the report to the government in December this year.

\SOURCE: www.abc.net.au :: www.news.com.au

Share market update for the week ending 21/10/2009

The Australian sharemarket as represented by the All Ordinaries closed at 4,846.20 up 2.51% for the week. The All Ordinaries have now rallied 55% from the March 6 low of 3112. In Australia on Wednesday, disappointing US data saw modest falls in the key finance and raw materials sectors, pulling Australia's share market lower.  This was led by falling global equity markets, and comments by BHP that they where cautious of the pace of the recovery in the developed world.  Despite BHP’s caution, they also reported that their first quarter iron-ore production had risen to a record level. BHP closed the day down 8c to $39.83, whilst their main competitor, and Australia’s other large diversified miner Rio Tinto, closed down 20c to $66.60. Of the big four banks, only ANZ was up for the day, when it closed at $23.84, up 5c.

In international news, the major event of the week was the US Federal Reserves released a report known as the “Beige Book”, published eight times per year. The Beige Book gathers anecdotal information on current economic conditions in its 12 Federal Districts, through reports from bank and branch directors, interviews with key business contacts, economists, market experts, and other sources. It effectively gives a snap shot of the health of the entire US economy. The report showed US consumer spending was weak in most parts of the US during September and early October, leaving unexciting prospects for economic growth into the rest of 2009. This lead the US Dow Jones to fall 0.92% on Wednesday. On a more positive note, the Beige Book noted that one of the more positive sector reports among the Districts, was for the residential real estate sector. This is perceived as further evidence that the US housing market has bottomed, which is an important step to economic recovery in the worlds largest economy.

SOURCE: Finance.yahoo.com.au

PRIMARY HEALTH CARE (PRY)

Primary Health Care Ltd is one of Australia’s leading listed healthcare companies. Primary Health Care is a company that provides a wide range of services to health care professionals in Australia who provide comprehensive care for patients.  Primary Health Care also provides pathology services, specialist eye clinics, and day surgeries.  The operations of the company include 87 Medical centres, 87 Pathology Labs with 782 collection centres, 161 Diagnostic Imaging sites and health technology software.

Like the rest of the western world, Australia’s population is ageing and healthcare is going to be one of the largest growth industries to benefit from this demographic change. As a leader in the health care field, Primary Health Care Ltd is well placed to grow its earnings on the back of this ageing population, and its increased need for health care.

In 2008, Primary Health Care Ltd acquired Symbion Healthcare. The merged group is now the largest domestic pathology provider.

www.primaryhealthcare.com.au

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