The Wealth-accelerating Benefits of Super for Young People

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HomeBlogThe Wealth-accelerating Benefits of Super for Young People
It's common for young people to save up for that round-the-world trip, a car, or moving out, but what about saving for retirement or their first home? If you’re a parent of a teenager, you could support them in building a secure financial future by teaching them about super. We look at the benefits of early super planning for young people, and initiatives like the first home super saver scheme.

Choosing the right super account from the start

When starting their first job, in most cases, your teenager will be able to nominate their preferred super fund. So, why not find one that truly meets his or her needs? With young people, one of their central concerns could be maintaining a low balance and avoiding hefty fees eating away at their super. When choosing a fund, consider the following:
  • Fees - The lower the fees, the better. Super funds can charge a range of fees, including administration, investment, advice, switching, exit, and activity-based fees. Check the product disclosure statement and make sure you're aware of what fees are applicable.
  • Insurance - Life insurance is often offered by default, so consider whether you need it or not and opt out if you don't, otherwise you could be automatically charged for it.
  • Investment options - Super funds may offer different investment strategies. This refers to the level of risk and growth potential you're happy with. For example, a conservative option might offer you low risk but low growth over the long term, while a growth strategy gives you higher risk but potentially higher returns.
  • Performance - How has the fund performed in the past?
  • Service - What type of service and support do they offer?

Maximising compounding power from voluntary contributions

Young people like teenagers potentially have the most to gain from paying extra into super because of the magic of compounding. By saving even modest amounts regularly and starting from an early age, your money in super has a lot of time to work hard.

Compounding and tax benefits

The compound power of super is enhanced by the fact super is treated favourably tax wise. Investment earnings - the money your super money earns - is usually taxed at just 15%. Additionally, voluntary non-concessional contributions - those you transfer into your super fund from your after-tax pay without claiming a tax deduction - can be made up to a total of $100,000 a year. You can also make voluntary concessional contributions by having a salary-sacrifice agreement with your employer. These are taxed at just 15% like your Super Guarantee, so it's another way for your teen to get more dollars into their super fund and potentially pay less in tax.

The First Home Super Saver Scheme

Starting early with building super could allow your teenager to buy a house earlier, thanks to the First Home Super Saver Scheme (FHSSS). The FHSSS lets you save money for your first home inside your super. Because super is taxed at the concessional rate of 15% (compared to higher rates of personal income tax), first home owners could save up more quickly within super. You could also make non-concessional (or after-tax) contributions into your super for the same purpose. When you’re ready to buy a house, you apply to release your voluntary contributions and related earnings (up to $30,000 in contributions plus the investment returns). You need to be at least 18 years of age and fulfil other eligibility requirements for the money to be released.

Other ways to make the most of superannuation

In addition to concessional and non-concessional contributions, young and old people alike can take advantage of government co-contributions to maximise their money in super. For example, if your teen makes less than $52,697 per year (before tax) and make after-tax super contributions, the government could make as much as $500 in co-contributions into his or her super. How much the government contributes will depend on how much your child contributes in after-tax contributions and their income level.
Additionally, your teen could also take advantage of the low income superannuation tax offset if he or she earns less than $37,000. You'll get a tax offset of 15% of the annual concessional contributions made by you or your employer, up to $500 a year. This is paid into the super account.
As a parent, it's useful to realise your teen is well placed to benefit from superannuation so you can help them incorporate a super strategy into their long-term financial plan. The key is to choose the right super fund from the start so a lower super balance won't be eroded by high account fees. Making voluntary, extra contributions from a young age also gives the money a longer time frame to grow. Additionally, things like the FHSSS and other government initiatives could help them leverage super to buy a house and save on tax.
At Student Super, we know that being a student isn’t always easy, so it’s important that your teenager makes the most of the benefits that come from super. Contact our team today to get your super account set up.
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