SUPER AS A HOUSE DEPOSIT

SUPER AS A HOUSE DEPOSIT

To make matters worse some politicians are reviving the idea that first home buyers should be allowed to access part of their superannuation for a house deposit.

Not only would it drive up house prices, the plan has two other major faults: it ignores the true cost of home ownership and it subverts the purpose of superannuation.

Superannuation has one major goal – to provide people with a retirement income so they won’t be living on the streets in their old age when the government runs out of welfare money. How much you have when you retire depends on three factors: the amount contributed, the rate earned, and the time the money stays invested. Reduce any of these and you reduce the final payout.

Suppose two people invest $3000 a year for 40 years. If one earns five percent per annum and the other earns 10 percent per annum, the end benefits are $400,000 and $1.6 million respectively. Doubling the rate of return quadruples the end benefit.

Obviously, the primary objective of anybody with money in superannuation is to achieve the highest returns possible – you could never achieve this if you borrow money from your superannuation account and use it to reduce a low-interest home loan.

The major message of the latest Intergenerational Report is that government resources will come under increasing pressure as the population ages.  Young Australians should do everything in their power to gain a good knowledge of finance so they can build a portfolio to rely on when they eventually retire.  Dipping into their superannuation because they can’t save a deposit is moving in the opposite direction.

The powers that be need to keep in mind that the genesis of the global financial crisis was President Clinton’s belief that every American was entitled to home ownership irrespective of income or assets.  This lead to billions of dollars of bad debts, repossessions and plunging real estate prices.  Australia can’t afford for this to happen here.

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