An extract of this interview has also been republished on Business First Magazine with a readership of over half a million Australians

Business First Magazine

In a previous instalment of our Spending Ninjas series, in which I interviewed the ABC’s Consumer Affairs reporter,  I promised you that the next interview will be with a true consumer affairs ‘royalty’.

I am now delighted to deliver on that promise! 🙂

The lady I am interviewing in this post is often referred to as Australia’s ‘First Lady of Personal Finance’.

I am honoured and humbled that she has granted us an interview and strongly urge you to read this post till the very end as the advice she provides here is worth its weight in gold and could literally save you thousands! No joke!

Meet Nicole Pedersen-McKinnon.

Nicole’s outstanding career and professional achievements (both in Australia and overseas) could fill an entire post by themselves (and quite a long one if I might add) so here is the ‘executive summary’:

  • Nicole is a qualified Financial Planner.
  • Nicole founded the Australian Financial Review’s Smart Investor Magazine and was its editor for 9 years.
  • Nicole was a reporter and editor for the Financial Times in the UK, one of the most prestigious financial publications in the world!
  • Nicole is an award winning personal finance commentator, columnist and bestselling author.
  • Nicole’s approach of using jargon-free conversational English when talking about finance is both refreshing and unique in the industry and has won her the top personal finance awards in both Australia and the UK.
  • Nicole is one of only nine people in Australia who was invited to be an ambassador of the MoneySmart Week initiative created by the federal government’s Financial Literacy Board. This is a project  which aims to promote the importance of financial literacy amongst everyday Aussies. Only absolutely top notch leaders in personal finance are invited to be official MoneySmart Week ambassadors.  Just to give you an idea of the calibre of these people, amongst the other ambassadors are the Financial Literacy Board’s Chairman Paul Clitheroe (A.K.A “Australia’s Mr. Money”) and the former (and first ever female) Governor-General of Australia, The Honourable Dame Quentin Bryce.

Do you understand now why I said that Nicole is a true consumer affairs ‘royalty’? 🙂

As you can imagine, someone of Nicole’s calibre is regularly featured in the media. She is a very very busy lady indeed and I can attest to that personally (thanks again for your valuable time Nicole).

As an example, in a TV interview Nicole gave to Channel 7’s Sunrise program back in 2015, she outlined a ‘Money Detox’ plan for the new year which takes only 5 days to implement and could save you $5000.

That video has unfortunately been removed since from Sunrise website but Nicole has also outlined her plan in a column she wrote for the Sydney Morning Herald.

I strongly urge you to read it in full as the potential ‘return on investment’ you’ll get from that if you follow the plan can potentially be very impressive indeed.

After all, when was the last time you got paid $1000 for each day of work?

Well, here is your chance.

Go and read the 5 day plan now. I’ll wait. 🙂

Welcome back. Wasn’t that worth your time?

With regards to clearing any credit card debt you have (day 2 in Nicole’s plan), our research suggests that these are the best balance transfer offers currently available.

However, all of them are only an option for you if you are 100% confident in your ability to stay disciplined!

If you are not 100% positive you can do so, then don’t even bother otherwise you’ll end up in even more debt!!

With regards to getting rid of old ties (day 3 in Nicole’s plan), I couldn’t agree more and have a few words to say about it as well if you care to read.

And now to my interview with Australia’s ‘First Lady of Personal Finance’.

 1.    Hi Nicole. As a long time commentator and expert on the financial services industry in Australia, do you think Australians are getting a raw deal on their banking compared to their overseas counterparts? If so, what can consumers do to get a better deal?

You think I’m going to say yes but it’s a no. True, we suffer from being a smaller market which, logically, attracts fewer players.

However, competition and innovation from overseas banks and institutions in the past decade (for example: ING Direct’s online savings account and BankWest’s 0% balance transfer card) has steadily forced local contenders to lift their game.

Australia has since given the world the mortgage offset account, which I believe to be the most powerful debt-reduction tool going.

Also so far we’ve been spared from the risk-based pricing of credit that keeps a banking foot on the heads of many Americans trying to climb out of debt (though I fear the recent move to positive credit reporting means it’ll be coming here soon).

I hate to say that in Australia our biggest obstacle is ourselves… our complacency! ‘She’ll be right’ doesn’t usually translate to ‘she’ll be rich’.

‘She’ll be right’ doesn’t translate to ‘she’ll be rich’. Click To Tweet

Better deals are now out there on just about any product you care to mention but many Aussies apparently prefer to pay what I call the Big Banks ‘Lax Tax’: unnecessary interest that my calculations put at an average $82,000 per person.

Every single Australian is paying $82,000 a year in 'lax tax'! Click To Tweet

2. The federal government has a long standing policy referred to as “the four pillars” which prevents any of Australia’s 4 big banks to merge with each other or acquire significant stakes in one another. Yet, the government has allowed the Commonwealth Bank to buy BankWest and Westpac to buy St. George, both major second tier Australian banks. Do you think allowing it to happen was a mistake? Did it reduce competition for consumers?

This is a double yes.

We need more competition, not less – and narrowing the market in this way had some consequences which were quite painful for consumers, especially due to the merging of credit procedures.

Having said that, the big banks have long been trying to hedge their bets by breaking into the smaller, more competitive end of the market.

There have been a couple of failed attempts by them to cash in on the burgeoning online lending market and also a highly successful one in the case of the NAB’s UBank subsidiary.

We also need to remember that we consumers have a role to play here as well: if we only stick to the big players it’s going to make it hard for smaller ones to survive. Ultimately, less competition would mean far worse interest rates.

If we stick to the Big banks, we'll get less competition and higher interest rates. Click To Tweet

Remember, in Australia regulation is strong. Plus we have a deposit guarantee that’s good for up to $250,000 and a legislated ban on mortgage exit fees which means you can now ditch any lender that hikes your rate.

(Editor note: there is now also legislation in place which makes it very easy for customers to switch their transaction account to another provider. The process is highly streamlined and uniform across all banks and there is no cost whatsoever to consumers. The full details are here.)

3. What are your thoughts about the level of financial literacy amongst Australians? Are there enough formal and informal ways for Australians to learn how to better manage their money?

I was honoured recently to grade Aussies with Paul Clitheroe and the head of Financial Literacy Australia on their financial smarts. It was part of my role as an ambassador for MoneySmart Week.

I’m afraid that the report card was not good (sorry!).

We found that:

  • Australians have among the highest levels of household debt and under-insurance in the world;
  • The average super balance at retirement is far from adequate and yet less than 20% of us actively build wealth for retirement; and
  • A quarter of Aussie households couldn’t raise $3,000 in an emergency, which is really dicing with debt.
25% of Aussie households couldn't raise $3,000 in an emergency Click To Tweet

The next generation aren’t on track to do any better.

For parents, teaching our children about money is becoming more challenging as it all but physically disappears.

Some schools are lucky enough to have financial literacy woven into the curriculum, thanks to Paul’s amazing efforts with the National Financial Literacy Strategy, but it’s a necessarily slow roll-out.

My big concern is that financial institutions are scrambling to fill the void.

Studies show the strongest brand loyalty is formed by the age of eight and as I mentioned previously, that lifetime loyalty nets Big Banks $82,000 in extra interest from their customers. This all makes it well worthwhile throwing money at school banking programs and ‘kid-tastic’ online resources.

You can bet these bank-sponsored programs leave out the fact that NO bank offers the best of every product – most don’t even offer the best of two!

Editor note: if you want to understand a bit more how insanely profitable school banking programs are for the banks (and especially the Commonwealth Bank and their ‘dollarmites’ program), I can’t recommend highly enough this video from the ABC’s outstanding consumer affairs program The Checkout)

 

NO bank offers the best of every product – most don’t even offer the best of two! Click To Tweet

The secret to success is going with the top deal on everything which means you will have to spread your business across multiple providers.

 

4. The government seems to constantly be ‘tinkering’ with the superannuation regime. Do you think this has caused more people to become disengaged with their super, especially amongst people in their 20s and 30s? Would you still advise people in that age bracket to consider super as a major pillar of their financial well-being come retirement? This is especially given they can’t access the money accumulated there for many decades and the rules can change so much during that time.

Yes and no.

Super is just a tax wrapper around whatever investments you choose (note that you should be actively choosing them!). However, it’s still a darn generous one.

The worries now, after successive cash-strapped governments have targeted super’s concessions, are the future tax rules and age restrictions.

Be happy that 9.5% is being paid into your super account on your behalf by your employer.

While in your 20s and 30s you should aim for home ownership (debt-free ASAP) and also have investments outside super.

5. What are the biggest mistakes you see people make with managing their personal finances?

Hands down it’s allowing their money to be lazy.

Readers should know not to keep money in sub-standard products and investments (I won’t bang on about it again!) but it’s also more basic than this – saving into a savings account when you have a mortgage is the BIGGEST boo boo.

You should instead put your savings on your home loan where ‘earnings’ are larger and tax-free.

However, you should not put them directly into your home loan but rather into one of those magic offset accounts I mentioned earlier so you retain full access and full tax deductions if you later convert your home into an investment property.

My calculators show the bottom line boost from a $10,000 emergency/school fee/holiday offset account against a $300,000 mortgage is more than $14,148. Plus you’ll repay your loan two years early so save two years of repayments on top.

Holding it against a 25-year mortgage will save you $31,286 in interest, which is completely tax-free and risk free. If you hold the same amount in the average online savings account, you’ll only make $17,138 in interest and also have to pay tax on that.

6. You, together with many other leading finance commentators, have stated that the future for women in retirement seems a lot bleaker than it is for men. This is a complicated issue with many ‘moving parts’ which will, in all likelihood, require government intervention. Until that happens, however, what can individual women do to improve their situation and increase their chances of having a comfortable and secure retirement? Is focusing their efforts on building their nest egg within super as appropriate a strategy for women as it is for men?

Yes because the tax concessions are the same – it’s just the earning element which disadvantages women.

Look I hate generalising on the basis of gender but women typically still earn 18% less and, because we still typically take the career breaks to care for children and parents, our earning period is shorter as well.

We women need to top up our funds to avoid a looming money trap.

Already 60-year-old single females have the highest poverty rate in Australia at 36% and women are retiring with half the super balances of men.

60-year-old single females have the highest poverty rate in Australia at 36% Click To Tweet

Not only that, women have to make this money last longer – females born today can expect to live 4.4 years longer than males.

Each year they’re earning, I’m urging women to contribute just 2% of those earnings into super on top of what their employer pays. You should salary sacrifice this pre-tax and it won’t even cost as much.

Each year they’re not earning, I’m also urging the men who love those women to make a spouse super contribution. They’ll also net a nice little tax offset for their trouble.

Finally, be sure to mop up the low-income super co-contribution each year you are eligible for it – that’s free $500 a year risk-free so take full advantage of it while it lasts.

7. What would be the top 3 financial tips you would give to someone leaving school and starting their life right now? What things would you personally do differently if you were back at that age again?

Well, I’ve always been a bit of a money nerd, squireling it away since the age of 15 – firstly to take long trips, then to buy shares, then to get in and quickly out, of a mortgage.

I probably would have steered clear of health and biotech stocks before the tech crash and pretty much everything before the global credit crack up, but none of us has a crystal ball.

Whatever you invest in, you should always choose investments based on your personal risk profile, even if you need to give them time to come good.

My advice to people starting out is always the same:

  • Loyalty is for (financial) losers – not just banking loyalty but with everything from your phone to your gym membership. (Editor’s note: needless to say, I agree 100%! 🙂 )
  • Stuff you work and wait for is much more delicious. Debt is toxic.
  • Picture your future – what you really want from life and the lifestyle you are after. Then go  and figure out how to make it happen!
Loyalty is for financial losers! Click To Tweet

8. Please tell us about your current projects and what things are you most passionate about in your professional life

Well you’ve hit on them.

My two biggest passions are:

  1. Giving our kids the money education they need to be fully-functioning financial citizens; and
  2. Averting the new GFC or “Girls’ Financial Crisis“. I have written an open letter to the Prime Minister regarding this.

These two issues drive and motivate me. This is especially because neither is difficult to fix.

Interest, awareness and a bit of effort is all it takes to transform the lives of both groups – I’m hoping to help with the interest and awareness at the very least!

Thank you for your time and valuable insights Nicole.

This concludes my interview with Australia’s First Lady of Personal Finance.

Amongst Nicole’s many projects, she is also the creator of the Money Mentor Way, a structured plan to help everyday Aussies get rid of their personal debt fast and build their wealth.

Why I'm passionate about getting Aussies money smart

We're back to school – but there's no teaching time for vital #SmartMoneyStart skills… and most young people graduate clueless about real-world financial survival. Please share and spread my mission to help 🙂 #FinancialLiteracy #Fun!

Posted by Nicole Pedersen-McKinnon Money on Tuesday, 31 January 2017

If you use social media, you can connect with Nicole on Twitter, Facebook and LinkedIn.

I trust you found Nicole’s insights useful and please be on the lookout for our next featured Spending Ninja coming to our website (and your inbox if you’re a subscriber) very soon.

If you have any comments or questions for Nicole, please feel free to leave them in the comment box below. We will do our very best to get them all answered for you (but it might take some time as she is one busy lady).

 

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