Could your savings account be your greatest financial risk? | Guest expert Danielle Ecuyer

Maddy Guest: [00:00:39] Hello and welcome to your Internet company podcast for like minded people who want to make smart investment decisions. I'm Maddie and I am with my good friend Sophie. [00:00:48][9.2]

Sophie Dicker: [00:00:49] Hi Maddy. How are you today? [00:00:50][0.7]

Maddy Guest: [00:00:50] I'm good. Before we start today's episode, we would like to acknowledge and pay respects to the grand jury, people of the quotation who were the traditional owners of this land. We pay our deepest respects to the elders past and present and to the next generation who we hope to create a different future for. Today I am so excited because we get to chat with someone from our community about their money habits, their savings goals, and why they're ready to jump into their investment journey and into the world of finance. [00:01:18][27.5]

Sophie Dicker: [00:01:19] I'm excited about that, too. But before we get into that, Maddie, can you tell me a little bit about what you do when you get paid, how your savings habits do you have a good budgeting system? [00:01:28][9.7]

Maddy Guest: [00:01:29] Look, I try my best. I guess I try to set up a system where every time I get paid, I sort of have automated transfers for where everything goes. So when I get paid, I straight away, I transfer out my rent, which is always a great feeling. And then I have a certain amount of money that goes into a separate account and it's actually just for groceries. And then I transfer the same amount every time into savings and then investing accounts, which are two separate ones. I think it's really important to distinguish between your savings and investing because, you know, everything we learn about investing is it's very much for the long term. You don't want to have to access it in any kind of a rush. So I don't like to think of that account as sort of money that I have accessible to me, which is why I try to distinguish it from my sort of proper savings account. [00:02:24][54.3]

Sophie Dicker: [00:02:24] I also think it's really good to be able to put a certain amount away per paycheck, even if it's a super small amount that you know, that you're always working towards that investing goal. [00:02:33][8.9]

Maddy Guest: [00:02:33] Yes, one hundred percent. So, yeah, I've got the same amount into my savings and then investing and then sort of what's leftover is, I guess, my little fun. [00:02:41][7.5]

Sophie Dicker: [00:02:41] Fun, fun. Fun. Yeah. [00:02:43][2.0]

Maddy Guest: [00:02:45] What about you? If you got something similar. [00:02:46][1.2]

Sophie Dicker: [00:02:47] Mine is very similar. I definitely am a bit confused about my fund fund at the moment. Post covid because so true. Yeah. I wasn't spending that fund fund as much of it and now I'm spending so much more and I'm like, oh well I need a budget this year, but I'm changing a few of my money habits around and getting back into kind of the saving savings pattern that I used to used to be in when life was a bit more normal. But yeah, very similar to just transferring out all the big expenses that I know that I can't I can't use that money. And then a little bit into savings and a little bit into investing as well. [00:03:19][31.9]

Maddy Guest: [00:03:19] Yeah. And I think where possible, it's great to try and sort of automate some of those transactions because everyone else is talking through it. Then, you know, it can sound a little bit cumbersome. And, you know, people always say that if it's automated, it's just so much easier. And, you know, you can forget about it. And, you know, it really is upset and forget mentality. So where possible, just being able to get that money out straight away and forget that you have it. I personally find it is a great thing. [00:03:42][23.4]

Sophie Dicker: [00:03:43] Now, let's jump over to the chat that we have with our newbie investor, Chloe. Today, we're going to be chatting to Chloe, who is a member of our You're in good company community. Chloe has developed some good money habits over the years, has some savings in her account and is ready to take the plunge into investing. We're going to dive into cloe relationship with money and why she is ready to start her investment journey. Good morning, Chloe. We're so excited to have you today. [00:04:07][24.2]

Chloe: [00:04:08] Yeah, thanks so much for having me on. I'm very excited to be here. [00:04:11][3.0]

Maddy Guest: [00:04:12] Thanks for joining us. And to get things started, can you tell us a little bit about how long you have been saving for? [00:04:18][6.3]

Chloe: [00:04:19] So I've been saving for pretty much as long as I can remember. I have a pretty good relationship with saving. I think it all started when I was in primary school and I had a bank book and my parents used to give me money, just one or two dollars a week, and I would take it to school and bank it. And I absolutely loved sort of just watching that grow. And I remember even in five or six, I think I had about four hundred dollars and I thought that I was queen of the castle. It started then and since then. My first job at about 14, and then I moved out quite young, so when I was 18, I moved out and I really started focusing on my savings and not formally budgeting, but just ensuring that I always was putting away enough money for rent and energy and food and other necessities. [00:05:25][66.0]

Maddy Guest: [00:05:26] All the important stuff that just took me right back to when Mom used to bribe me to do the ironing and she would give me five cents per clothing. that's not enough. [00:05:37][11.0]

Chloe: [00:05:39] That's really nothing. [00:05:39][0.6]

Maddy Guest: [00:05:41] Like I had to do 20 pieces to get a dollar. [00:05:43][2.4]

Maddy Guest: [00:05:44] That is nothing. I was getting seriously ripped off. [00:05:47][2.3]

Sophie Dicker: [00:05:48] Your mom is smart. [00:05:49][1.1]

Maddy Guest: [00:05:49] Maybe that's maybe a tactic I'm going to employ. [00:05:51][2.1]

Chloe: [00:05:52] Yeah, but I would think the pesky food that would have been like ironing socks for a five cent call. [00:05:58][5.8]

Sophie Dicker: [00:06:00] So how would you define your relationship with money and what do you think is influence this over the years? [00:06:05][4.9]

Chloe: [00:06:06] I think I have a pretty inconsistent relationship with my. I'm not sure if that even makes sense, but I have a I have a good relationship with savings because it's something that is somewhat in in my control. And I know if I can just segment a portion a week, I understand that. But then I also avoid thinking about things which I know are quite important, which is like I avoid thinking about my super. And up until quite recently, I have really avoided thinking about things like investing and accumulating interest on accounts. But I do have a good relationship with money in that, you know, I put away enough each week that I know that I can accumulate a little bit of savings over time. I enjoy spending money on things that are really important to me. So I don't I don't struggle to make purchases or spend money on things that I enjoy. [00:07:13][67.0]

Maddy Guest: [00:07:14] I think that's a really common experience where things like superannuation or investing people put it in the too hard basket and just sort of avoid thinking about it, like you said, because, you know, when when you want to start learning about things like this, it's so hard to know where to start. And really the easiest thing to do is just to not think about it. But hopefully you'll be able to help with that. And you touch a bit on how you sort of have quite a good relationship with saving and you like to sort of spend money on specific things. Can you sort of elaborate a little bit further and tell us sort of why do you save and what do you have any savings goals in particular? [00:07:54][39.4]

Chloe: [00:07:55] Yeah, so I guess for me, being in control of my finances really just gives freedom and signifies sort of freedom. And probably just from a young age. I used to hate relying on my parents. So knowing that I had enough money in my account to do things with my friends and go out and spend money on dinners and shopping or whatever, I really enjoyed that. So I think I used to save just just for freedom. And then because I did move out quite young, I then started saving for, you know, just basic things like living expenses. And then I also would save for trouble. And so I guess in the past sort of 12, 18 months, my relationship with savings has changed again and my goals because, you know, it used to be living in travel, whereas the past 12 months, obviously we haven't had that freedom. And my perspective has really shifted. And I've started to think, OK, well, I've accumulated a bit of a nest egg and now I'm getting to the age where I think if I do something with it now, it could be beneficial in the future. So thinking about perhaps end goal, putting a deposit down for a mortgage in probably 12, 18 months, probably 18 to 20 for a bit more realistic, but six months. So I'll buy a house. So I guess it used to just be for the freedom of not relying on anyone. And I guess it's just transitioning into a more sort of adult relationship where it's still freedom. But, you know, owning having some assets would also give you that freedom. [00:09:46][111.3]

Sophie Dicker: [00:09:47] Yeah, well, that's a good point that you make. I think as you get a little bit older, you think about the longer term goals and sometimes it's even hard to think about things such as retirement, past even that buying a house phase, but really still. Yourself up now so that in the future will be good to rock. So, Chloe, another question we were going to ask you was, do you have an interest rate on your savings account? And do you know what that is? Do you see it accumulating over time? [00:10:13][26.5]

Chloe: [00:10:14] Well, I will be honest with you, because you've been so lovely to have me on. But until this morning, I didn't know what my interest rate was. And I think this goes back to my relationship with money. And I know the very basics and I know how to save, but I do often avoid looking a little bit deeper. And so I checked my interest when I was knowing that I would come on and I felt sick in my stomach because I checked it and it is actually zero point zero one percent. That is more so. So I definitely don't see it accumulating. When I checked it this morning, I tried to find a few deposits and there was a few tiny deposits around about 30 cents. So many it's exactly probably about what your mom was charging you to have to do mine. And I probably end up exactly with her. But I also know that I did recently switch banks. I moved to a clean bank from another bank and another bank. And so I think that is probably why the interest rate is quite a bit lower. [00:11:36][81.7]

Maddy Guest: [00:11:37] Yeah, look, I think that that interest point is quite a common experience at the moment. You know, save interest rates on savings accounts are extremely low at the moment. So you're definitely not alone there. And I guess that's sort of why this is played into last week. And I really want to help sort of push the education pace around investing, because the reality is, is so many people and women in particular have these big amounts of money sitting in their savings account and it's just not doing anything for them. Do you know what the average inflation rate in Australia is? But funny question, [00:12:12][34.8]

Chloe: [00:12:13] I didn't until I started thinking about coming on this podcast and started doing a little bit of investigating. So I'm now, I guess, educated in in this space a little bit, but only only three young girls encouraging me to me. But I did learn that it is at about one point two percent. [00:12:35][22.6]

Sophie Dicker: [00:12:36] It's about average 2% over the past ten years or so. So it's a lot higher than what your interest rate is. That's the short 0.01 percent. [00:12:44][8.3]

Chloe: [00:12:45] Exactly. Not earning anything with that. [00:12:48][3.1]

Sophie Dicker: [00:12:49] And what has spurred you to start investing? We've spoken about it a little bit and you seem pretty keen to get on board. So what has been the catalyst for you deciding to take that next step with your with your savings account? [00:13:03][13.9]

Chloe: [00:13:05] Yeah, I guess it's been in the back of my mind for probably two, three years, but it is something that I commonly avoid thinking about or I'll start to do a little bit of research and feel really inspired and empowered. But because I I basically don't know anything at the minute and I don't know I don't know where to stop. And so I've started to have these conversations with my friends and people like you in particular. So if you're really encouraging and I know that it's probably the right thing to do and I do want to make that next jump. But I guess the one thing holding me back has always been I understand savings. I understand portioning away my my portion of my salary each way. That makes sense to me. And that feels really safe. And when I see it in my bank account, even though it's not earning much interest, it does still feel like a safe position to be in and then making that jump from having just an interest account. Or, you know, I've also thought about having a long term deposit. Making the jump from that to actually investing has just been a little bit scary because I don't have all of the resources or I don't really know where to start. So I guess then I'm hearing you guys are starting this podcast. It's been absolutely phenomenal because it's it's the exact sort of resource that I need to probably just encourage me to take that little next step. [00:14:53][108.5]

Sophie Dicker: [00:14:54] Yeah, well, I think that's honestly the most common story that we've been hearing from people, from our friends, from our peers. It just seems a little bit scary. Savings seems so safe, but investing can be safe as well. And we hope that we can take you along that journey across this podcast. But it's been so good to have you. We're going to touch base back with you in a couple of episodes time and chat to you about where you've come so far in your investment journey. But thank you so much for your time today and we can't wait to chat to you later on. [00:15:24][30.6]

Chloe: [00:15:25] Thanks, girls. Hopefully I'll be a millionaire by then. [00:15:28][3.3]

Sophie Dicker: [00:15:28] That was a great chat with Chloe. It's so exciting that she's about to jump into her investing journey. [00:15:32][4.1]

Maddy Guest: [00:15:33] I feel like I'm a bit of a reader with this. I got so fucked up. And when someone is like, I'm ready to start investing, I'm realizing the benefits. [00:15:40][6.5]

Sophie Dicker: [00:15:40] I know it's pretty exciting. [00:15:41][0.8]

Maddy Guest: [00:15:42] So we touch on a few great points about interest and inflation, but we're definitely keen to understand a bit more about why keeping all of our money in savings probably isn't doing us any favors. [00:15:53][10.8]

Sophie Dicker: [00:15:54] We are just going to take a quick break to hear from our sponsors, but we'll be right back to chat to one of our experts who's going to give some further clarification to some of the points we touched on with Chloe. [00:16:04][10.0]

Maddy Guest: [00:16:05] And to help answer our questions, we have brought on finance expert Danielle. Danielle has got over three decades experience in the industry. So, Danielle, can you please tell us what actually is interest? [00:16:18][12.6]

Danielle Ecuyer: [00:16:19] That's a really good question. And basically, money has a time value. So you need to earn interest on your cash because you are basically lending that money to an institution like a bank who then lends it out to other people. So the process of putting your money in a bank, for example, means that you get interest because you need to gain some return for giving the bank your money, basically because they in turn are going to lend that money on. [00:16:52][33.7]

Sophie Dicker: [00:16:53] That is a very succinct definition. I like in a second question is what is inflation? [00:16:58][5.2]

Danielle Ecuyer: [00:16:59] Inflation is basically the price of goods and services over time and whether it goes up or down. So inflation is generally what we like for an economy. It's when prices go up steadily, not too high and not too low. So over the longer term, our central banks like the Reserve Bank of Australia, like to see inflation of about two to three percent. And the reason why they like that is people tend to say, oh, by this good now rather than waiting down the track, which is what happens in a deflationary scenario. And in that scenario, it's really bad for the economy. So inflation is an expected increase in a basket of goods that the Reserve Bank calculates each year. [00:17:49][50.2]

Maddy Guest: [00:17:50] OK, so now if we can sort of put this into practice with all this in mind, are we actually making any money with the interest rates on our savings accounts? [00:17:58][8.1]

Danielle Ecuyer: [00:18:00] Definitely not. Right. If we could step back in time. So when I was young in the late 1970s, it was when inflation was super high and interest rates were super high. And my mother used to put her money in the bank and she would get a return of 14 percent per annum. Can you imagine earning 14 percent on your cash? My goodness. And this is an overnight cash account, and that's how high interest rates are. Yeah. So now we are faced with something so from the late 1970s, early 1980s to now, where interest rates have pretty much gone to zero. And that means for people like yourselves, you're working, you're saving, you're saving up for a deposit on a house or holiday. You pop it in the bank. But even though our inflation rate is low at, let's say, under two percent, which is not what the Reserve Bank wants, it basically means you're losing money because the cost of goods is going up, let's say, one and a half percent per year. But you're not even generating that of your savings account. So you're actually going backwards. And the reason why the banks keep bringing down all the central banks, bring down interest rates is to encourage people to invest. [00:19:24][83.2]

Sophie Dicker: [00:19:24] Interesting. I think that's one of the biggest misconceptions that people have about the interest on their savings account. It looks like that you are gaining money, but you really are losing that purchasing power. I think you explained it perfectly. Now, what about term deposits? We have a lot of friends who are thinking about setting up term deposits as a savings technique. So just for people who don't know, can you explain first what is a term deposit? [00:19:49][24.6]

Danielle Ecuyer: [00:19:50] Yeah, it's really simple. So on a normal checking account, for example, that old fashioned concept of a checkbook, you had instant access to your money with no conditions attached to taking that money, putting it in or taking the so term deposit. Literally a term defines a period of time of which your money will be locked up in that deposit should you decide to put more money in or put a bigger amount of money in than they want or take some money out, you will lose that extra interest. So a term is purely a word for a set period of time that you have to leave the money in the bank. [00:20:29][38.3]

Sophie Dicker: [00:20:29] Is there higher interest rates on term deposits? Is this a good practice? [00:20:32][2.9]

Danielle Ecuyer: [00:20:33] Typically, a term deposit should offer you a higher rate. But what I have found personally, because I don't use them, is that they will offer you a higher rate for a certain period of time and then suddenly it clicks back to the normal variable rate. So I think when you look at a term deposit, you need to be very specific and understand the conditions of that term deposit. How much money can you initially put in? How much money can you add to it? At what point in time? The interest rate going to revert to a lower level and I think like anything, we all go, oh yes, we'll get one percent on our term deposit. And then you find sort of four months later, which I used to with a couple of ones that I had, it's like, oh, gone backwards again. So you really need to know the fine print on what term deposits so far. And they all tend to vary a little bit. [00:21:28][55.3]

Maddy Guest: [00:21:29] Yeah, that's very good to know. I feel like a lot of people sort of get sucked into the term deposit idea and it sounds like a great idea. But having these conversations, we realize that there's some little tips and tricks in there that maybe and not such a great savings vehicle. So we've learned about savings accounts historically. Other hands on investing any better or do we just have no hope of saving? [00:21:54][24.5]

Danielle Ecuyer: [00:21:54] No, not at all. OK, so if you go back over a longer period of time, typically the stock market here in Australia has returned about 10 or 11 percent per annum, and that is composed of what is called the capital gang, which is the rise in the share price. OK, and then there is what is the dividend income, which is kind of like interest on owning a share, if you can imagine that. And typically that was about 10 or 11 percent. However, like everything in the world, as interest rates have come down, so have the returns on the stock market. So I did some checking for you and it's probably around seven point seventy seven point eight percent over the last 10 years. So before everybody goes, oh, well, that's no good, you need to know the rule of 70, to which I, funnily enough, only learned last year, which is basically if your money grows at an average rate. So this is an average of around seven percent a year, you will double your savings in 10 years. [00:23:00][65.6]

Maddy Guest: [00:23:00] Well, I've never had that ever. [00:23:02][1.7]

Danielle Ecuyer: [00:23:04] You go [00:23:04][0.1]

Maddy Guest: [00:23:04] that is a great [00:23:05][0.3]

Danielle Ecuyer: [00:23:05] fact and it works the other way. OK, so if your money grows at 10 percent per annum, you double it in seven years. So this is the thing that people need to understand. This is why your superannuation monies are invested. This is why you probably just can't rely on a bank deposit anymore. There's nothing wrong with them. But basically putting your money to work to try and make it work in a better way for you is much better for your long term savings. [00:23:35][30.4]

Sophie Dicker: [00:23:37] So really, what we've kind of worked out today is that because of inflation, our growth amount of our savings needs to be higher than that inflation rate. And we're finding that on the stock market, is that right? [00:23:49][12.0]

Danielle Ecuyer: [00:23:49] Absolutely. And of course, you would probably find the property market as well or Bitcoin, but that's a low risk. But the whole proposition is not everybody can go out and buy a property. However, given the way that there has been this innovative disruption in share investing, it means anyone can start to invest in the stock market. You can start the smallest amount as per share is five hundred dollars. But actually with some of the other different platforms around, you can make it much smaller. And the whole idea, you're absolutely right, is to make sure your money is growing in excess, well in excess of inflation. So 10 years down the track, you're going to have more purchasing power for your dollars. [00:24:38][48.5]

Maddy Guest: [00:24:40] A huge thank you, Danielle, for joining us on the episode today. We feel so lucky to be able to take your questions straight to the experts, so please send them through. There are definitely no silly questions. [00:24:50][10.3]

Sophie Dicker: [00:24:51] And we're so excited to continue to track the progress of Chloe as she takes the plunge into investing as we are for all of you. [00:24:58][6.4]

Maddy Guest: [00:24:58] Next episode, we will be chatting to Betsy Westcott and debunking some of the most common jargon terms that you will encounter when you start investing. In the meantime, we would love for you to join our Facebook community at why IGCC Investing Podcast, Discussion Group and Jenny ask questions or post ideas. [00:25:16][17.5]

Sophie Dicker: [00:25:17] You can also follow us on Instagram at why it's a podcast or email. Any questions directly to yigc@equitymates.com And we'll do our best to answer. Until then. [00:25:17][0.0]

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