Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper PDS and TMD.

Rob: Hello and welcome back to another episode of Super Informed Radio. I'm Rob.

Lyndon: I'm Lyndon.

Martha: And I'm Marta.

Rob: It's been a while since our last episode, but now that the end of financial year is done and dusted, we are back.

Marta: Yes, we are. Now, because there's been a lot happening in super in recent months, we're taking a slightly different tack this episode and talking all things spending and saving with an Associate Professor from the University of Sydney's Business School.

Lyndon: And we've also been keeping an eye out on the podcast mailbox and had a few questions coming through from our listeners. So, we have invited Angela Riga from our contact centre back to the studio to answer some of your questions.

Rob: Also, because a new financial year obviously means new beginnings, we're going to set ourselves a little bit of a money challenge.

Lyndon: But we will begin this episode with that sometimes uncomfortable subject matter of spending and saving. Now, have you ever felt guilty coming home after shopping? Have you ever walked into a shop with a list of things to buy, only to come out with a bunch of stuff you didn't even need? Why does our brain somehow convince us to spend our hard-earned money and what can we do about it?

Rob: Dr. Shumi Akhtar is an associate professor at the University of Sydney's Business School and we spoke with her about our behaviours towards spending and saving.

Marta: Can you tell us a little bit about what you do and what your research focuses on?

Shumi: Sure. So, I'm an Associate Professor in finance at the University of Sydney Business School, finance discipline. And my research focuses on many aspects of the economy and its efficiency as well as the well-being. So, the types of research I do is consumers' spending behaviour and also how the market itself works in terms of evaluation of assets and understanding how the efficiency of bond market, equity market and interest rate impacts on everyday people life, basically.

Marta: Interesting. So, taking it to the, sort of, consumer spending and stuff, would you say...and I subscribe to this theory personally.

Shumi: Sure.

Marta: ...but did you work find that or has your research found that retail...is retail therapy a real thing?

Shumi: It is a real thing. And, you know, we all do it. Some do it knowingly, others do it unknowingly. In fact, it is more prominent more in the female population in terms of the gender than male. But lately so, in the 21st century, there is an upward trend of men stepping into that space as well. So, it is real thing.

Rob: In some of the research that I've read, you've put up a concept about competitive spending or...particularly among a younger demographic, when there's a discounted item or something is on special that the younger demographic tend to, sort of, flock to it and think, "I must have this now, I've got to have it, I can't miss out." Can you tell me with a bit more about that?

Shumi: So, the spending behavior varies across different generations and then also across different age as well as different income groups. So, generally speaking, the younger generation when there's something on a special or half the price or a quarter of the price, they just go for the bargain, regardless of whether they actually need the item. There is this contention is that whether when the younger generation goes and buys all these things, do they actually realise the value of the item itself or they're just doing it out of spark?

And because, generally speaking, the younger generation, they don't really earn much because they're in a different stage of their life. So, therefore, anything that's reduced, they can see that it triggers in their brain the affordability. If they can afford it, they should go for it, regardless of whether they actually really need it per se. So, there is a needing requirement and then there is the value assessment. The younger generation are not the best to people to judge the value of the item.

Rob: I'm sure there's a lot of truth in that. I believe you.

Marta: Guilty.

Rob: Just on that you said that the younger people generally obviously don't have the income of those that are a little bit older, did the research also confirm that people tend to generally, at whatever age they are, spend more than they actually earn? And if so, why are they doing that?

Shumi: Yeah, it has been of psychological connotation attached to it because when we go in the shops, we see new things. And it's quite refreshing and our human behavior used to do something that kind of comfort us. So, when we're actually going...even if you don't end up buy something, even the very fact that you actually went to the shop, that itself gives you some kind of good feeling. And if you bought something at a special price, that's even a better feeling because you may have...I mean, if you need it, then that's a different story.

You may have been wanting it so badly for many years or something and finally you found it, it is a discount price and then you go, "Okay, that's great." In that case, the value coincided with your needing. But most of the times though, you see something which has the special price, you just go for it. And it's just a psychological satisfaction that we go and we buy something, something new. New is always refreshing. And it gives us some level of satisfaction.

Rob: I agree. We all like shiny new things.

Shumi: Yeah.

Marta: Especially after pay day. Have you come across anything or do you find that changing economical or political trends or climates can shift people's spending or saving habits?

Shumi: Oh, for sure. Yeah, that's one of the very important determining factors in terms of who is the political leader per se, and what are their agendas or policies for the whole economy per se. Some political leader comes and then they increase the tax and also don't really proportionately increase the wages or salaries. In that case, you are coughing out more than what you're actually keeping to yourself. So, therefore it definitely has an impact how the economy itself is running by the dictatorship of the political leaders.

And usually when the political leaders are quite generous and they're this generous at all levels of the economy in terms of the high earners or say the middle earners and the low-income earners. And if there is a constant amount of gift per se like...it's like a handout or, like, "Hey, well, if you are paying that much of mortgage or something, you will get this much handout from the government."

So, those kind of incentives also play a role in terms of...in the spending. And, of course, that's not the only factor. There are other factors. Like, generally speaking if the inflation is quite low, so which means that the price doesn't go up that much, then we can still afford it, even though our earnings is not that much.

So, if the price itself can be a determining factor and usually when the economy is in a bad shape, then people tend to spend less on the luxury items and spend basically, I wouldn't say more on their...their necessities, it just is relatively speaking, it seems like they're spending more on their consumable stuff, which is like bread and butter or tea something they are doing end up having more bread and more butter just because the economy is in downturn, you still spend the same constant amount.

But the very fact that you are not spending anything else in luxury items or something more expensive like entertainment and things like that, then it seems like you're spending more in your basic consumable. So, I would say yes, it is and that's what the research finds anyway, that the status of the economy also dictates and then also who is in power dictates the spending behind all the consumers.

Rob: We here at UniSuper encourage members to make personal contributions to their accounts and obviously promote some great tax benefits that can come with that. I'm just kind to know any of the research you've conducted or the any research that you've come across, if you've been able to decipher the savings behaviour of people generally. Do they prefer to put money in a bank account more than their superannuation? I mean, I would say that that is usually the case, but why do you think that is?

Shumi: Okay, so basically if you put the money in the superannuation, you don't get access to it until the certain point where you'll be able to access to this money. But people even if they earn a bit the extra money and they end up putting it in a bank or something or keep it more in a cash form, so that it's just easier to access. It just gives them more freedom to do it and then we all love our freedom. Freedom is something that you can't really put a value on it. It's almost like priceless.

In terms of whether would the people would be putting more in their super as opposed to putting money in their bank or to keep money for usage, it actually depends on the person, the personality as well as the education level, too. The understanding of financial matters. So, on average if the understanding of financial matters is pretty low, they will never understand that the value of the money, whether it will be worth more by saving now or I should spend now and enjoy it right now and then worry about the future later.

So, it boils down to people's education level and understanding. No, not exactly education. Sometimes people may not be educated, but they have got a very good and deep understanding of financial matters.

Marta: Yes.

Shumi: Like, for example whether they have got a extra, say, $1000 now, whether they should go and spend it on the lavish stuff that they really wanted to all this time or they should actually put it aside and leave it for the future, so that it generates the income itself. And then from the generation of the income, they kind of spend it. So, it's quite subjective actually.

Lyndon: Yeah.

Martha: Yeah, I think it's one of the challenges that we sort of face trying to sort of show you the future value of money put away now. I think, yeah. I think it's a long time thing.

Shumi: I mean, if it turns out to be, which is quite an astonishing finding that on average, people don't really understand a very simple math. So, if you have $100 now and then how it will grow in a year time or 10 years' time and not only just grow, I mean, it can grow out two ways. One is a changeable grow, and the other one is the inflation grow. They don't understand the meaning of those two.

If it is the inflation grow, then you haven't actually grown, you just maintained the CPI of the economy. But if there is a tangible growth, which is over and above the inflation, then that is the real growth and that is how your investment will actually make a difference in life in an aggregate level. So, that's' one understanding not people has on average in Australia or even in some of the international countries, where education level is much higher than Australia.

Marta: And finally, before we go, would you consider yourself a spender or more of a saver?

Shumi: Funny you asked that question. I'm more of a spender than saver actually. I have to say, I mean, I love shopping. So, it comes down to more of my behavioral aspect than the understanding of the financial matters. I mean, I specialise in finance and of course I know how things work, but sometimes I can't resist. And that's more like, "Oh, look at that. I mean, how cool is this? And I really need it, even though I really don't need it. I really need it. I want to have it. So, I will go and buy it." And yeah, I would say I'm a spender more than a saver.

Rob: Well, that I feel so much better that you've said that now. I mean, I don't feel guilty at all.

Shumi: We're all in the same bucket.

Marta: Yes.

Rob: That's right.

Marta: Well, thank you very much for your time, Shumi. We really appreciate it.

Shumi: No problem. My pleasure.

Rob: Dr. Shumi Akhtar there from the University of Sydney's Business School, speaking about the psychology of spending and saving. Now in keeping with that theme, we thought it would be interesting to conduct a bit of a challenge here at UniSuper. And, of course, we have our own Marta here with us. And we've also invited in James Lowndes, who is from our contact centre. Welcome to Super Informed Radio, James.

James: Thank you Rob. Thank you for inviting me.

Lyndon: So, James, thanks for volunteering to be part of this little challenge we're running here. So, I think perhaps what we do for our listeners just quickly, we'll get an idea of who James and Marta are as spenders and savers. James, what are some of the biggest things in your spending and saving world?

James: Well, a little bit about myself, I work here at UniSuper within member services, 50 years of age, an average income, two children, both between ages 13 and 15, both in private school. I have a mortgage. To answer your question, Lyndon, probably the biggest challenge is the two private school fees each year.

Lyndon: Yeah, that's got to be the big one?

James: Yes, it is. It's manageable, but it stretches a budget.

Lyndon: I can well believe that and now turning to our very own Marta. Tell us a little bit about yourself as a spender and saver, what are some of the big ticket items for you?

Marta: So, I'm in my early 30s. I rent in the inner city, in Melbourne's inner city. I have no dependents and I guess I'm trying to save for whether it's buying a home or whatever, but I don't really know what I'm saving for at the moment. My main priority is just to pay down a personal loan I've taken out that I did to consolidate my credit card debts.

Lyndon: Very interesting. So, well the reason why we'd like to have both of you involved in this exercise is that you both obviously are very different stages of your lives and have vastly different financial responsibilities, so the comparisons could be quite vast. So, what we're going to get you to do, if it's okay, is keep track of every item you spend over the course of one pay period, which is the next two weeks and we'll get you both to report back your findings in our next episode of Super Informed Radio.

So, what we're going to then do in the following episode is invite an adviser from UniSuper Advice to come in and assess what you've been doing, your spending habits and see if they can provide a few pointers on how you might be able to improve those habits.

Rob: Are you up for the challenge?

Marta: Challenge accepted. Albeit little bit reluctantly.

James: Oh, dear, but I accept the challenge.

Marta: Excellent, excellent.

Lyndon: Very good, we look forward to looking at that in the next episode.

Rob: Okay, so moving on, we have been thrilled to receive some of our emails regarding the podcast. Some listeners of email doing some questions they'd like us to explore. And so as a result we have brought back Angela Riga, who is one of the team leaders in our contact centre. Welcome back to the show, Ange.

Angela: Thank you. Thanks for having me back.

Lyndon: Now, as I said, we've received several emails, mostly related to last year's and this year's federal budget. So, we want to dive straight into the questions. So, this one is from Lisa in New South Wales, "Is UniSuper offering the first home Supersaver scheme?"

Angela: So, to provide some context first around the question, in the 2017 Federal Budget, the government introduced a measure allowing members to make contributions from 1 July 2017. They could make these to their super account to assist with savings towards a deposit for their first home. These contributions can be done by salary sacrifice, deducted personal contributions or non-concessional after-tax contributions. Members would be allowed to make a deposit of up to $15,000 a year.

It is important to note though that this hasn't been passed into law. As a result, we're not offering this facility as yet to our members. If and when this measure does get passed into law, we'll let all of our members know about how this will work for them.

Lyndon: So, Angela another question that's coming in from John in South Australia, he says, "I understand there's a limit of $1.6 million that I can transfer from my accumulation account to a Flexi Pension." And then he says, "What happens if I transfer more than $1.6 million, cannot transfer more than $1.6 million?"

Angela: So, in regards to this question from 1 July this year, there is an index 1.6 million-dollar limit on the total amount of super that you can transfer into your retirement phase. Anyone with a balance between $1.6 and $1.7 million will have until the 31st of December 2017 to bring their balance within the current limit, that is, $1.6 million, without being subject to any excess transfer balance tax.

From 1 July this year, anyone with a balance of 1.7 million or above will be subject to the excess balance transfer tax. So, to answer John's question, you can transfer more than $1.6 million, but just be mindful of the consequences if you do. Some options available to members are to move their excess amount over the balance to either an accumulation account or they can withdraw their money as a cash withdrawal.

Marta: Thanks for that, Ange. If you’d like your question answered in a future episode of Super Informed Radio or if you've got any feedback, feel free to drop us a line at superinformed@unisuper.com.au.

Lyndon: And that brings us to the end of another episode of Super Informed Radio. You can subscribe to us on Apple podcasts or on Sound Cloud and give us a rating or review which helps the podcast out big time. We hope you've enjoyed listening and if you like to catch up on any of our past episodes, simply go to unisuper.com.au/podcast.

Marta: Thanks very much. See you next time.

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