Each generation has its own financial struggles. While baby boomers are trying to afford their third investment property, millennials are trying to budget for their daily coffee, an Instagrammable lifestyle, overseas travel and a future home. It’s good to have goals, but the generational gap means what has worked in the past may not still be relevant today.
Here are two common millennial money questions:
Should I make voluntary payments to my HECS/HELP debt?
Having student debt ticking away in the background may cause angst to many people in this situation. There is logic in thinking that once this debt is gone, there will be more money to devote to the things you love.
However, it is generally not recommended that you pay additional funds towards your HECS/HELP debt. Any voluntary payments are made from post-tax dollars (unless possible via salary sacrifice). Also, the HECS/HELP debt is technically not attracting interest, it’s only indexed annually (currently 1.9 per cent as of 2019) and does not impact your credit file.
The minimum payments that your employer should withhold start at 1 per cent for those earning more than $45,881 and 2 per cent once you reach $52,974. If your earn more than $134,572, the amount is 10 per cent. The thing is, as your career progresses and your income grows, you will be paying off your debt more than the indexation. This means it is taking care of itself. Further to this, if you were to die prematurely, your debt is cancelled. Your HECS/HELP debt is an education tax; it’s best to just say this out loud and get on with your life.
If you are applying for a mortgage, a lender would generally take into consideration the “repayment rate” from a servicing point of view. This could mean that a person on a high income and low HECS/HELP balance could be impacted more than a low-income earner with a higher HECS/HELP balance. There are instances where it might make sense to pay off your debt if applying for a mortgage, but a good broker should be able to explain all the scenarios regarding how HECS/HELP impacts your lending.
Do I need private health insurance?
The good news is, if you’re sick in Australia, there’s a great public safety net that will care for you and cover most medical treatments and expenses. The better news is, if you’re facing an emergency, you’re not asked about any private insurance before being checked into hospital.
The not-so-great news is, however, if you earn more than $90,000 as an individual or $180,000 as a family unit, you’ll have to pay the Medicare Levy Surcharge (MLS) if you do not have private patient hospital cover (private health insurance). This starts at 1 per cent, then 1.25 per cent through to 1.5 per cent based on your income.
The other not-so-fun news is that if you’re over 30 years old and do not have private health insurance, you will essentially have a 2 per cent loading applied to your health insurance when you do decide to take out cover. This loading is applied every year that you do not take out cover. The system is designed to get as many people as possible out of the public health network.
Private health insurance is a great tool for elective surgery as you can choose your doctor and have a procedure undertaken on your own timeline as opposed to being on a public waiting list for up to 18 months.
Do not get sold on the extra benefits with private health insurance such as optical, dental or physiotherapy. These are benefits, not the sole purpose for cover.
Here’s a quick snapshot exploring whether or not you need health insurance:
- If you’re under 30 and earning more than $90,000/family threshold, private health insurance is beneficial.
- If you’re under 30 and earning under 90,000/family threshold, private health insurance is a luxury.
- If you’re under 30, earning under $90,000/family threshold and have some health issues or are injury prone, you may consider private health insurance.
- For those over 30 and earning over $90,000/family threshold, private health insurance is probably a must-have.
- For those over 30 and earning under $90,000/family threshold, it may be considered wise to have private health insurance (even with minimal extras and a higher excess to keep costs down and to avoid the lifetime loading).
Everyone has a unique situation so don’t do something just because someone else is doing it. Remember that annoying saying your parents said, “Would you jump of a cliff if they jumped off a cliff?” Well, it applies here. Thanks again, Mum.
Words by Glen James
Glen James is a multi-award-winning financial adviser and host of the My Millennial Money podcast. He has helped countless people get on top of their finances. Glen is conservative and somewhat of a contrarian in the way he delivers his practical and fun financial advice. He has a particular interest in personal finance and small business for millennials. mymillennialmoney.com