As the CEO of HESTA, a $50 billion super fund representing over 840,000 members, Debby Blakey has developed keen insights into the spending and saving behavior of many Australians.
She recently spoke as part of a panel on Secrets of the Money Masters, and shared her thoughts as to what issues in the average Australian’s mindset are holding them back from reaching their wealth goals.
Debt: good versus bad
First, Blakey said there needs to be greater education around what constitutes good or bad debt, and how either can be accumulated. “There’s some good debt,” she said, “like a mortgage to buy a property, but credit card debt is an example of bad debt. It has high interest rates and if you’re delayed in paying it off you’ve long since enjoyed what you bought with it.”
How can people better manage their debts and avoid credit traps? Blakey said it comes down to understanding one’s relationship with money – which is a lot easier with the help of a financial adviser. “Consider your triggers for, say, spending on credit cards,” she said, “when you’d rather not be doing so. What creates good behavior and bad behavior? You’re trying to find alignment in terms of your financial goals. You won’t find that alignment if you don’t understand what your relationship with money is.”
Part of the reason this can often be difficult, she added, is because socially, we find it difficult to talk about money: “We’re often not brought up talking about it – we haven’t learned that skill throughout our lives.”
Investing in what you can touch
Another issue Blakey touched upon was Australians’ love-affair with property, which she said made a lot of sense. “It’s understandable that people go to the idea of property,” she explained. “It’s tangible – you can see it, touch it and take a photo of it.”
“But it’s important to think through the attributes of property,” she continued, “and then think deeper about your investments than whether you can touch and feel them. There’s the fact that property is illiquid – you can’t sell it as easily as other asset classes. And it’s lumpy: you either own it or you don’t; you can’t sell it a brick at a time if you need access to capital.”
Overcoming home bias
Finally, Blakey addressed how Australians tend to invest, and the ubiquity of home equity bias. “When discussing diversification,” she said, “people understand it when you visualise it as not having too many eggs in one basket.”
“Living in Australia,” she said, “probably means you’ll one day own your own home in Australia and you’ll be deriving your income from Australia, which means you’re very exposed to the Australian economy.
“There’s an enormous case to be made that if you’re going to live here and earn your income here, you should look to diverse your portfolio globally. Australia makes up a small part of the global stock exchange – it’s only 3%, and it’s important to think about the whole global opportunity in terms of investing.”
Super, she added, was a great way to mitigate that exposure: “You can think of super as a vehicle to give you access to so many different asset classes. You might own a portion or airports and gas pipelines, and different property – not just residential.”
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