Superannuation for under 18s: what to tell your kids
31 August 2021
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If you haven’t had a conversation with your teen about super, now is the time.
It may seem strange to get your teen thinking about super before, or at the start of their working lives. The truth is, knowing the basics today can make a big difference to their future.
If you’re not sure where to begin, our top-level guide will help.
Start with the basics — the Superannuation Guarantee and employer contributions
If your teen hasn’t entered the workforce, or is about to enter the workforce, they may not know the basics about superannuation.
First, tell them superannuation is money being set aside for their retirement. The government tells their boss to do this for all their employees (it’s called a Superannuation Guarantee, which means employers are legally obliged to make contributions to their super account).
If your teen is under 18 and working more than 30 hours a week, their employer should be making contributions to their superannuation on a regular basis — at least 10% of what they’re getting paid. When your teen is over 18, employers are obligated to make super contributions regardless.
It’s your teen’s right to have this money put into their superannuation account. So make sure you tell them they need to be double checking their payslips to make sure it’s going into their super account. If it isn't, they need to have a chat with their employer about why. If their employer still refuses to pay super, your teen has the right to take legal action.
Lastly, your teen also has the option to make contributions of their own but we’ll get back to this in a minute.
If they’ve already had multiple casual jobs — consolidate to protect their balance
It’s not uncommon for young people to have had many casual jobs before the age of 18. They’re trying to get around to learn as much as they can about the world and themselves.
If your teen is one of these adventurers, they may have more than one superannuation account. This means they could also have multiple sets of super fees eating up their super balances.
One of the best things you can advise your teen to do is to consolidate all of their super accounts into one account. By doing so, they may be able to:
- Protect their small super balances from being eroded by fees
- Compound more interest
- Save time because they’ll only need to keep track of one fund which means they’ll only have one statement to read each year
- Get them excited about the total balance as it grows each year
We also highly recommend that you give your teen this same advice if they’re considering having a career break, gap year or simply to take time off before they enter the workforce in earnest.
Even if they’re not currently earning, the money they already have in super will continue compounding interest and working hard to grow.
Time is a teen’s best friend — make personal contributions
The majority of teens are contemplating what to do with their lives rather than what they’ll be doing at the end of their careers. It’s understandable most won’t be taking super very seriously at this time.
However, one of the greatest gifts you could give your teen is an understanding that when it comes to super, time is their best friend.
The more they have in their super account at the very beginning of their working life, the more interest they may compound over a lengthy period of time. The money that goes into a super account at the beginning of their working life is what may benefit from a compounding effect the most.
It may be the difference between a more comfortable retirement and one that is less so.
“ Consider that a small sum of $1000 invested, compounding consistently at an average of 10% a year for 50 years eventually compounds to over $117,000. So get your teen thinking about what would happen if they were to invest in their super consistently over the long term. ”
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There are a variety of ways in which your teen can actively take advantage of their youth and the time they have.
One way is to enter a salary sacrifice agreement with their employer to make super contributions from their before-tax salary. With a salary sacrifice they may be able to reduce their income tax and save more in super.
Another way is to make after-tax contributions. As tax has already been paid on this money, your teen won’t need to pay it again. The advantage of an after-tax contribution is your teen may receive extra contributions from their employer and even possibly a Government co-contribution.
If you have a girl, get them thinking about the retirement gap and making personal contributions
Today’s young people care a great deal about rights and equality. They have the power to change the world, and the passion to make it work. But they’re inheriting significant financial issues of which many working women are now having to work through today.
According to Rice Warner, there’s a gap of 17% between male and female superannuation balances at retirement for full-time workers. With part-time workers counted in, this divide grows to 33%.
The divide between the wealth of men and women is very real.
More often than not, the reason for this is women work in lower paid roles and lower paid industries. They can also have lengthy periods away from the workforce to not only look after children but also aging parents. When they work during these phases, it’s mostly in a part-time or a casual capacity.
Again, time is a teen’s best friend, but this is especially true for teenage girls. Appeal to their sense of excitement about the future, and empower them to take action today.
It’s important to get your teenage girl thinking about making personal contributions either through a salary sacrifice or after-tax contribution. Giving their super a small but healthy bump early may help compensate for time away from the workforce to close the retirement gap just a little bit.
Need more advice about what to tell your teen about super?
If you’re confused or feel overwhelmed about what to tell your teen, give our Member Services team a call on 1300 369 315.
Alternatively, fill in our contact form and someone from our team will get back to you as soon as possible.
