Selling comes in many forms. I’m not thinking of the knock-on-the-door, pushy salesperson stereotype. Good selling is about understanding other people, identifying their needs, and communicating in a way that helps solve problems. Closely related is the skill of negotiation.
These skills are relevant everywhere — from family dynamics all the way through to having a product or service to sell. We might have all the smarts and technical knowledge in the world, perhaps even a product that will change lives. Without the ability to communicate value and build relationships, success may well be limited.
Financial literacy is equally important. Many financial concepts will only truly make sense once they are experienced in real life. However, being introduced to the basics at school provides a useful head start. The financial cost of not understanding key concepts can be significant.
One such concept is the power of compounding. Investing $100 per month from your first job at age 18 and earning an average return of 5% per year grows to around $193,500 by age 65. More than two-thirds of that total comes from investment returns rather than contributions. Time does much of the heavy lifting.
By comparison, someone starting at age 40 would need to invest about $340 per month to reach the same outcome. At that stage of life, a mortgage, children, and other commitments can make saving considerably more challenging.
What’s less obvious is that compounding works just as powerfully against you on borrowings. The cost of carrying credit card balances, hire purchase agreements, and the long-term impact of how a mortgage is structured are all things that can catch people off guard. So too is the distinction between productive and unproductive debt — borrowing to buy an income-producing asset with potential for capital growth, such as a rental, is very different from borrowing to buy a bigger television.
Insurance is an important topic. Many people either ignore it or buy it without understanding what they’re actually protecting against. That can leave gaps, or mean money is spent inefficiently.
Tax is another area in which some basic knowledge can be valuable. Understanding how PAYE works, why self-employed income is treated differently, and how tax returns operate removes a lot of unnecessary mystery. Every student should also understand the basics of KiwiSaver — how employee and employer contributions work, what the government incentives are and how to choose an appropriate fund.
And while spending less than you earn sounds simple, cash-flow management matters too. Understanding when money arrives and when bills fall due can prevent a great deal of financial stress.
Finally, lifestyle inflation deserves a mention. As income rises, spending tends to rise with it. Recognising that pattern and directing even part of future pay increases towards saving or investing can make a significant difference over time.
These are practical life skills. Combined with an understanding of communication, selling, and negotiation, they provide a foundation for better decisions, greater opportunities, and improved financial outcomes throughout life.
— Stephen McFarlane (www.centralwealth.nz) is a Certified Financial PlannerCM and a Director of Central Wealth Limited
