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Alec: [00:00:07] Welcome to Bitesize on Get Started Investing. In this series we feature some of our favourite lessons, quotes and moments from the podcast. If you'd like to listen to the full episode, we've included the link in the show notes. So Jacob, one that we've alluded to before, and it's certainly top of mind for a lot of people, it's actually really front of mind and it kind of pisses me off a lot because somehow Bryce has managed to pay his HECS off before me and I still have HECS debt. And so when I look at Al Zero, he's actually taking home more pay than maybe even his salary. It's great, great ideas. So I guess the question for me, you know, indexation, I'm not sure what it got indexed out, but because inflation is high, the it the everyone's HECS debt rose a fair bit or more than it has over the previous few years. Is that a reason to pay our HECS debt off faster or what's the strategy and the thinking around HECs?
Jacob: [00:01:09] In my view, no, not at all. I might have a bit of a wry view on this perhaps, but the indexation doesn't bother me at all. I don't think there's, in my view, unless you've got money coming out of your ears, there is no benefit in repaying that line. If any of these new but other commitments that should come first they should all take priority over the HECS debt raising base. There is no interest right. It's an interest free loan from the government so it can't do better than that. And we get hung up on this indexation. But as perhaps you guys are on the standard, I'm sure many of your listeners would think that it's nothing if inflation is 2% in my lines. Being indexed at 2% is exactly the same as I put that in. Otherwise my investment is returning 6% but inflation is at three. Investment is only returning three. So we work that out is what we call the real cost. So you take off the indexation away from it. So the other benefit with HECS of course is there's no mandatory repayments other than your income, so your hard times and you've lost your job and whatever those HECS repayments will stop, they're not going to come out and they only get higher and higher as your income gets higher, which I guess when you think about it from a more kind of way, way off the left field here, but from a bigger societal view, these loans are extended to help people get education, to get jobs and become productive. Members of society can contribute, and only if they're generating that income will they be asked to repay the loan. I think that's fair enough. I mean, ideally one could argue it should be free as a total investment better system, because if you said, alright, well let's sack HECS, if they're still going to be loans, it'll go totally private and we'll be ending up in a US type scenario where you're dealing with a commercial lender, you're making it whether you've got income or not and you're paying an actual interest rate on that loan, which would be higher than the true cost of money by inflation. Now people are getting hung up because inflation's obviously going to be quite high recently. So the indexation is going to be a lot higher than normal, but that's not going to happen all the time. You know, you look back at what it was and one could make the argument that, sure, it's going to go up quite a bit. Now they go back to COVID times. They probably didn't buy much at all, if any, because inflation was nothing. We're in slight deflation for a bit there. So, I mean, it goes both ways. But no, I don't think unless that's the only thing left, only debt left. And we've covered everything else. That's only when I'm looking at making extra tax repayments.
Alec: [00:03:27] The one exception would be if the money that you would take to pay off your debt you just blowing on nights out and stuff like that.
Jacob: [00:03:37] Yeah yeah right yeah yeah yeah.
Alec: [00:03:39] The assumption is that money is going to pay down other debt or being invested.
Jacob: [00:03:44] Correct? Exactly. Right. Right, exactly right. Yeah.
Alec: [00:03:47] Not as well. Then I should probably stop going out and nights out and pay off my exit.
Jacob: [00:03:52] Oh, how about this? Equity is just say nothing, and then you won't have to make any extra payments.
Alec: [00:03:57] Don't you Bryce, any ideas?
Bryce: [00:03:59] I just reduced. Yeah. Reduce the salary. Yeah. Hold on.
Alec: [00:04:04] This is why I need a financial advisor. All right. If you enjoyed that bite size, you'll find a link to the full episode in the show notes.