Page 3 - Wealth-Adviser-Issue-118 (FWP)

ISSUE 118
AUGUST 2025

national curriculum. “Within Mathematics, the Number, compelling example: “A 20-year-old who starts putting aside
Algebra and Measurement content strands include explicit $110 a fortnight at a 5% per annum net investment return
content to help students develop an understanding of may save close to half a million dollars by the time they’re
money and apply mathematics to investigate and solve 65 years old” .
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problems involving financial contexts” .
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By Year 9, students “learn and can think critically about Real-World Applications: From Debt to
financial contexts involving the cost of credit and interest Wealth Building
earned on investments” and “understand and apply strate- Breaking the Debt Cycle
gies to manage financial risks and rewards” . For Australians struggling with high-cost debt, under-
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The curriculum recognises that financial capability standing these psychological patterns is crucial for escape.
involves more than knowledge. The National Consumer and Credit card debt, averaging 20.07% for standard cards and
Financial Capability Strategy 2022 defines five essential 13.23% for low-rate cards, compounds against borrowers
elements: financial knowledge, skills, attitudes, confidence, through the same mathematical principles that could
and positive behaviours that lead to sound money manage- otherwise build wealth.
ment decisions. Breaking debt cycles requires addressing both the
mathematics and psychology involved. This often means
Practical Strategies for Overcoming confronting the emotional and social drivers of spending—
Behavioural Barriers using purchases to manage stress, maintain social status, or
Automatic Systems and Default Choices provide short-term mood boosts.
The power of automation cannot be overstated. When
contributions are automatically deducted before we see our Building Investment Discipline
pay, hyperbolic discounting loses its grip. Consider Emma, Consider two friends, both 30 years old: James invests
a 25-year-old teacher who sets up automatic salary sacrifice $5,000 annually for 10 years, then stops contributing but
contributions of $100 weekly to her superannuation. Over leaves his money invested. Sarah waits until 40, then in-
42 years until retirement, assuming 7% annual returns, this vests $5,000 annually for 25 years until retirement. Despite
creates an additional $906,175 in retirement savings. The contributing $50,000 versus Sarah’s $125,000, James ends up
total contributions amount to $218,400, meaning compound with more money due to the additional decade of compound
interest adds nearly $688,000 to her retirement nest egg. growth .
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The Power of Specific Goals Superannuation:
Vague goals like “save more for retirement” compete Australia’s Compounding Engine
poorly against specific immediate desires. Successful savers The Mathematics of Super Success
translate distant objectives into concrete, emotionally Current data shows significant variation in superannua-
resonant terms. ASIC’s MoneySmart calculators show that tion balances by age and gender. For Australians aged 35-39,
a 30-year-old with a current $40,000 super balance who average balances are $90,822 for males and $71,686 for
contributes an extra $50 weekly would have approximately females. By ages 60-64, these have grown to $380,737 and
$1.1 million at retirement . Frame this differently: that $300,717 respectively .
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extra $50 weekly—roughly seven coffees—funds 25 years of Consider Maria, a 35-year-old with the average female
comfortable retirement. super balance of $71,686. If she contributes only the
mandatory 11.5% on a $65,000 salary, her balance grows
Implementation Intentions and Pre-Commitment to approximately $580,000 by retirement. However, adding
Psychology research shows that “implementation just $50 weekly in extra contributions increases this to
intentions”—specific if-then plans—dramatically improve roughly $750,000—an additional $170,000 for $108,000 in
follow-through on goals. Rather than resolving to “spend extra contributions.
less on entertainment,” create specific rules: “If I’m tempted
to buy something over $100 that isn’t essential, I’ll wait 48 Salary Sacrificing: The Behavioural Sweet Spot
hours before purchasing.” Salary sacrifice contributions work particularly well
because they occur before money reaches your bank ac-
Making the Future Vivid count, eliminating the psychological difficulty of “giving
One reason immediate rewards win over delayed ones up” money you already possess. For a professional earning
is that we can clearly visualise the immediate benefit while $80,000 annually, sacrificing $5,000 reduces take-home pay
future rewards remain abstract. AustralianSuper provides a by only $3,250 after tax savings. Over 25 years, this $5,000

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