Finance tips for young adults

Money is an important topic for everyone. If you're young, and just starting out in the world of work, you may not have much of it yet! But it's never too early to learn some basics.

1. Understand the basics

Financial services often seem really complicated, but it's not hard for you to understand the basics for all financial services that you buy. Otherwise, you could get a nasty surprise if something goes wrong.

Before you sign on the dotted line, make sure you understand the basics of:

* What you have promised to do (eg make regular payments).
* What the company has promised to do (eg provide a loan, or cover a loss).
* Whether there are any exceptions or qualifications to these promises (eg an insurer may not have to pay your car insurance claim if you had been drinking when the accident occurred).
* What you should do if something goes wrong.


Don't be afraid or embarrassed to ask questions. Sometimes it can be awkward, but a good salesperson should give you enough time and information so that you can understand the product. You can also ask to take the documents away, so that you have time to read them and get advice.

Don't be pressured into signing something that you don't understand. You could regret it later.

2. Hold onto your paperwork

Anything to do with money often involves lots of paperwork - account statements, contracts, policy documents, terms and conditions and more.

If you're tempted to throw all this paperwork in the bin - stop! Even if you don't read it all straight away, get into the habit of keeping the important paperwork in a special file that's easily accessible. It will come in handy if you have a question or problem about your financial affairs.

You should also get into the habit of keeping notes from any important telephone calls you have with your finance institution. Again, they might help if you have a complaint.

Your notes don't need to be fancy, but it's important to record basic information such as the name of the person you spoke to, the date and time, and an outline of what was said. Keep this with all your other paperwork.

3. Reduce your costs

Some form of savings or transaction account is almost a necessity these days. But don't be complacent about your account - there are ways that you can reduce the costs.

For example, if you are a student or a recent graduate, you may be able to get a fee-free account. Ask your institution if they have one.

But what if you are not eligible for a fee-free account? You can still reduce your costs by changing how you bank. For example, it's often cheaper to use Internet banking than to visit a branch. But first, you'll need to understand how and when fees are charged on your account. Ask your institution to tell you about the main fees and charges, and whether you are entitled to a certain number of free transactions. You can use this information to help you develop cheaper banking habits.

4. Minimise the risk of unauthorised transactions - keep your PIN secret

Many complaints about unauthorised transactions are made each year. The best way to protect yourself from someone accessing the money in your account is to keep your PIN and/or password secret! Don't tell anyone your PIN or password - this includes your friends and family. Also, don't keep a copy of your PIN or password near your card, or on your computer (unless it's password protected).

Many institutions will let you choose your own PIN or password, and this can help you remember it. But, be careful with what you choose - don't make it so easy to remember that it will also be easy for a thief to guess.

5. Be very careful with direct debits

Direct debits can be a great way of making sure that the necessities of life - like your bills and rent - are paid on time. But make sure you know how to cancel a direct debit if you need to. For example, if you change your phone company.

To cancel a direct debit, you should tell both your institution and the company making the direct debit (eg the phone or electricity company). Writing a short letter is often best. Keep a copy of the letter, and if problems arise, contact your institution straight away.

Also, make sure you have enough money in your account to cover a direct debit. If there is not enough, you might have to pay an expensive overdraw fee.

6. Shop around for insurance like you shop around for a car or plan a holiday

When you're buying a car, planning a holiday, or taking out a loan, insurance is probably the last thing you want to think about. But you may need it, and it's important to spend a little bit of time shopping around.

Having a good insurance policy can make all the difference to your pocket - both now and if the worst happens and you need to make a claim.

So don't just accept the insurance policy that is offered by the car yard, or the travel agent, or the credit provider. Remember, the agent may be getting a commission for selling you a particular policy, even though it may not be the best one for you.

Shop around. The Internet and telephone call centres make this easy. Even if you make just three or four quick telephone calls to different companies, you'll find that the price might vary by $100 or $200 or more. And that's even before you look at the coverage and exceptions on the policy.

And before you sign a policy, make sure you understand what the insurer will and will not cover. For example, some travel insurance policies might not cover you if you are injured when bungy-jumping or white water rafting. If you don't choose a policy with the right coverage for you and your circumstances, you could end up with hefty expenses to pay.

7. Tell it like it is

When you apply for insurance, you'll have to provide lots of details to the insurance company. For example, if you are getting car insurance, you may be asked about your driving record, whether the car has been modified, and other things. Your answers will help the insurance company decide how risky it will be to insure you, and therefore how much your policy will cost.

Don't be tempted to massage the facts! If the worst happens, and you need to make a claim on your policy - your insurer may have grounds for refusing to pay your claim.

And this goes for renewals as well. You must tell the insurance company about any changes in your circumstances each time you renew your policy. The type of questions that were asked in the original policy application will be a good guide to the information you might need to disclose when you renew. And if you have any doubts - ask your insurer! (And keep a written record of what they told you.)

8. Think about insurance before you choose your car

If you are buying a car, its good to think about insurance before you choose the type of car that you want.

You might think that, if two cars cost the same amount to buy, they would cost about the same amount to insure. But the cost of insurance often depends as much on the type of car, as it does on the cost of the car.

For example, a sporty car might look great, and impress your friends, but it might cost you $200 or $300 more to insure than a basic car. And if your dream car has got modifications, like mag wheels, or has a bigger engine, insurance might cost you more again. It's better to be prepared for these extra costs than to get an unpleasant surprise after you have bought the car.

Also, remember that a finance company can require you to take out comprehensive insurance to cover the car, but you don't have to take out other types of insurance. For example, insurance to pay the loan if you become sick or unemployed may be too expensive or sold just because of the commissions. This type of insurance is not compulsory. You don't have to buy it even if the salesperson suggests you must have it.

9. Take things slowly and watch out for scams

If you're like most people, its easier to spend your money than to save it. But saving and investing are often the only way to achieve your big goals - buying a new stereo system, buying a car, going overseas.

Often it's easiest to save small amounts frequently - maybe by directly transferring some of your pay each fortnight to a special savings or investing account.

If you're thinking about investments - managed funds, shares, and others - you need to think about what level of risk you are prepared to take. The higher the return, the higher the risk that you will lose all your money.

Remember that there are no easy ways to "get rich quick". Stay away from investments that promise incredibly high returns for low risk and little work. They are usually scams.


Other warning signs for scams are:

* lots of exclamation marks and capital letters in the advertisements
* no 'real life' address - just an email address, or post office box and
* lots of assurances that the scheme is legal.


Be cautious. If you think an investment opportunity looks a bit dodgy, make some enquiries before you commit your money. Check out FIDO, our consumer website, or talk to a licensed financial adviser.

10. Keep track of your superannuation accounts
If you are just starting your working life, retirement will probably be the last thing on your mind. But you should check to make sure you are getting any superannuation you are entitled to. In addition to paying you your wages, your employer is required to contribute an amount equal to 9% of your earnings to your super fund, unless:

* you earn less than $450 a month; OR
* you are under 18 and you are working less than 30 hours per week.

If you change jobs frequently, or have more than one job at a time, it can be hard to keep track of your super. Keeping all your statements in one place should help.

You may also be able minimise the number of funds you have by asking to 'roll over' your accounts from your previous employment into your current fund. Ask your current fund for help with this.
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