Among the many financial concepts we juggle as adults, superannuation (super) stands out as the cornerstone of retirement planning in Australia. Yet, the term ‘superannuation’ often brings to mind a maze of complex terms that many find daunting.
Here we look at ways you can transform superannuation from a puzzling concept into a super exciting part of your child’s financial education.
Introducing… Super Accounts
Imagine if you had a magical treasure chest where every coin you put inside would continue to grow and grow, until one day you could open the chest, stop working and live happily ever after!
This is the essence of a superannuation account – a special savings account designed for your retirement.
What is a Super Account?
From the moment you start working, a portion of your earnings from your employer (called the ‘Superannuation Guarantee’) begins to flow into your super account. These contributions are invested to grow over the course of your working life.
Learning Activity
To help your child grasp this concept, consider using a clear jar as a visual aid. Each time they complete a chore, contribute a small amount to the jar, explaining that this is similar to how super accounts grow over time with contributions from work.
The Hunt for Super Treasures
Imagine a grand adventure in treasure hunting.
This adventure is filled with paths of varying difficulty. Some paths offer smaller treasures that are easier to find (low risk, low return), and others have larger treasures guarded by more challenges and uncertainties (higher risk, higher return).
The Safe Shoreline (Lower Risk, Lower Return):
Near the shoreline, treasure is often found in the shallow waters. It’s easy to reach and requires little effort, but the treasures are modest.
This is like investing in term deposits or savings accounts, where your investment is safer but will likely receive lower returns.
The Mysterious Jungle (Medium Risk, Medium Return):
At the edge of the shoreline is a jungle. The jungle is tougher to navigate but has hidden treasures that offer better rewards.
These are like balanced funds, where the risk and the return are moderate, appealing to those who seek a bit more adventure but aren’t ready for the highest peaks.
The Mountain of Legends (Higher Risk, Higher Return):
Farthest from the shore is a mountain where the largest treasures are said to be hidden. To reach them, you’ll face steep climbs and uncertain paths. You might even get lost and need to retrace your steps.
This is like high-risk investments such as stocks, where the potential for high returns is significant, but the ride will be a bit bumpy.
Learning Activity
To help your child grasp this concept, use three cups to represent the different paths.
Cup 1: Add one marble to the cup and place one metre away from a starting line.
Cup 2: Add two marbles to the cup and place two metres away from the starting line.
Cup 3: Add nine marbles to the cup and place three metres away from the starting line.
Offer your child the marbles from their jar and ask them to try throwing them into one of the three cups.
Discuss the relationship between risk and return—how cup one might be the easiest to get, but it only offers one marble, and how cup three offers a lot of marbles, but would be harder to get.
Empowering your children with the knowledge of superannuation is more than just a lesson in finances. By breaking down these concepts into understandable, relatable pieces, we can help our children feel confident about taking control of their financial future from a young age.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
