A No-Brainer "Investment"

This post drew its inspiration from a great blog post written by Tony Hansen, which I urge all readers to read here.

The Australian Superannuation Co-Contribution Scheme (CCS) was introduced in 2004. For each of the years from 2004 to 2011, a low income earner paying $1000 into his/her superannuation fund would have received into their super another $1500 tax free from the CCS. In 2012, the CCS would have paid $1000. In 2013 and 2014, and for future years (assuming no changes), the CCS payment is $500 for every $1000 of after tax contribution.

A low income earner who made use of this opportunity from its inception in 2004 right up until 2014 would have received a total of $12,500 superannuation co-contributions from the CCS for an outlay of $10,000 over this ten year period. Assuming a relatively modest 8% yearly returns, a sum in excess of $32,000 would have resulted from this exercise. The only investment "skill" required is the effort of saving the equivalent of $19.20 per week from after tax pay. Bearing in mind the low income tax rebate available to low income earners every year, the actual saving required drops to a mere $11.50 per week.

In advertisement lingo: "Receive $32,000 in 10 years by paying less than $20 per week."

There are very few investment opportunities, in fact none that I could find, available to the general public which provides such fabulous returns for virtually zero risk and miniscule effort over such an extended period of time. The mystery to me is why so very few take advantage of it. One logical inference is that for many people, saving $20 per week is just too difficult. Another logical inference is that our education system and financial system have not been doing a good job of lifting standards of financial literacy amongst Australians.

The good news is that it is not too late to act now (ala Demtel and TV infomercials). A low income earner saving $20 after tax per week into his/her superannuation for the next 10 years, assuming 8% per annum returns (quite achievable with a low cost index fund), would have accrued a total of nearly $22,000.00. Yes, the money is locked away for a long time, and yes, the laws governing superannuation is quite likely to change in the future. On the other hand, to carry the cheesy advertising angle a bit further, what have you got to "lose", other than one less $20 note in your wallet every week? If the CCS is removed 5 years from now, there is no loss to the saver, who can just redirect his/her savings elsewhere.

For young people just starting out working, perhaps in low paying apprentice jobs, it will be difficult to find a more rewarding alternative to the CCS. Consider the fact that a 18 year old out of high school, working as a low paying apprentice, by saving $20 per week, would have accumulated an extra $22,000 in their superannuation account before they turn 30, on top of any employer contributed superannuation.

Whether one is low-income, mid-income or high-income, I hope that this post delivers the message clearly: how you play the cards you have been dealt in life is equally important, if not more important, than the cards you have to start off with.

Disclaimer: Opinion of a General Nature Only, containing facts that may be wrong or outdated. Definitely not financial advice of any kind.