Think you’re smart with money? This test will tell
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Think you’re smart with money? This test will tell

For all the available advice on how to teach kids about money – and yes, from me too – there’s very little for parents who feel overwhelmed and at sea.

Or education for adults full-stop, few of whom had the benefit of the brilliant money lessons that have been embedded in multiple core subjects in Australian schools since 2015.

But I’m delighted that’s changing – and I was thrilled recently to MC the launch at Parliament House of the country’s 2018 National Financial Capability Strategy.

Nicole Pedersen-McKinnon (left) at Parliament for the launch of the 2018 National Financial Capability Strategy, with National Financial Literacy Board chairman Paul Citheroe, former financial services minister Kelly O'Dwyer (with a seeing eye dog in training that was shadowing her around Parliament) and ASIC chairman James Shipton.

Nicole Pedersen-McKinnon (left) at Parliament for the launch of the 2018 National Financial Capability Strategy, with National Financial Literacy Board chairman Paul Citheroe, former financial services minister Kelly O'Dwyer (with a seeing eye dog in training that was shadowing her around Parliament) and ASIC chairman James Shipton.

What on earth is this thing "financial capability"? you might well ask. It boils down to being able to manage your money day-to-day, make informed financial decisions and – the big one – plan for the future.

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The end result is a tantalising existence where you call the shots.

Sure, making that dream a reality takes a little aptitude but I’ve found it’s mainly attitude … and there are five hallmarks of a money S.M.A.R.T. life:

1. Save don’t cave

... and its close relation – "spend less than you earn". Here, I’m talking about saving and waiting for what you want rather than succumbing to temptation and flashing the plastic for it. If you need convincing about the merits, remember that whenever you spend borrowed money, you pay more than the price on the label (unless you clear the debt in an interest-free period and are simply being strategic). You’ll never get ahead that way and, worse still, fall further and further behind; you’ll always be working to pay for previous spending. That’s true of "buy now, pay later" too – and the more you do it, the more you run the risk of converting short-term splashing into long-term drowning.

2. Moderation not deprivation

Financial capability is being in control of your money.

Financial capability is being in control of your money.Credit:Jessica Shapiro

Ever been on a doomed-to-failure health kick? They generally start out super hard-line and restrictive … then you head for the nearest packet of Tim Tams. Well, ditto if you try not to spend anything. Wealth, like health, has to be a lifestyle that you can maintain forever – and, crucially, enjoy. Be kind to yourself and give yourself little rewards along the way.

3. Amass a cash stash

I chatted with an inspirational financial counsellor the other day and you know the top piece of money advice she wanted me to spread? Start a "holy sh-t" fund, although she was way too polite to call it that. But in life, sh-t happens … we lose jobs, get sick, need to unexpectedly replace a car. Your capacity to cover these are-you-kidding-me? costs determines whether you experience a little distress or a life-limiting disaster. Aim for at least three months’ salary, and preferably six (and if you have a mortgage, hold it in a mortgage offset account to reduce your loan interest).

4. Rates not mates

This is my upgrade on that tired old adage "shop around" … because it needs to be brought home just how powerful it is when you do it. I’ve calculated the average Australian pays an excess $123,000 in interest if they stick with the big four banks for all their debt products: one typical mortgage, personal loan and credit card. Yes, my Interest Integrity Index reveals the cost of misplaced loyalty – in fact, people often stick with their first bank for no greater reason than convenience – is a luxury sports car. Or retirement two years early. You could save what it might otherwise take you 1.5 years to earn with a couple of quick web searches and a few forms. Even refinancing a mortgage is not as onerous as you might think.

5. Target goals so sweet you can almost taste them

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You need strong motivation to resist instant gratification … we all do. So get it. What do you want "future you" to be like? Does she no longer work in a corporate environment? Is he taking two years off to travel the world? Do they have a fully paid off home that no one can take from them – ever. Give yourself really big, beautiful reasons to forgo the smaller, inconsequential stuff and life could be so much more delicious.

So how S.M.A.R.T. – and bright – is your future looking? Remember, for women in particular, to also have your W.I.T.s about you (you are Worth it; you need to be Independent; you should Touch the sky!).

And imagine how life-changing it would be for your kids if you gave them a S.M.A.R.T. start 

Nicole Pedersen-McKinnon is a commentator and educator who presents her Smart Money Start in high schools around Australia.