Advice please for young disability pensioner

A 21 yr old disability pensioner has asked my wife and I for advice on how she might save money to one day own her own home. She pays board and does not throw her money around (not that there is any to hit the town with). Finance and accounting are not our strengths, nonetheless we feel obliged to help someone who has the go and gumption to try to make her way in life. Independent living would assist with her problem.

The best practical option we could come up with is for her to:

- open a First Home Saver Account (FHSA) with the Members Equity Bank which has no fees, gives a monthly statement and pays the best interest of the banks we compared; and

- put at minimum $1000 a financial year, but up to $5000 into the account, best done by set and forget regular transfer from the account her pension is paid into.

If she is able to perform some contract work in the future to make use of her IT skills (not academically credited unfortunately), then so much the better. We are unsure of any avenues for this.

Honestly, we have difficulty seeing how she could get a deposit together for a long time, but the ego rewards from seeing some investment grow would do a lot for her wellbeing. It would lapse into superannuation if she cannot buy anyhow which is not such a bad thing I guess. Some do it tough.

Comments and suggestions would be welcome.
 
Bit of a difficult one.....

Getting a loan even after a deposit is saved could be either very expensive interest wise or not available - unless she has steady income by that time.

One possiblity she might want to explore would be to put the money into a managed fund or REIT with a view to trying to outperform cash deposit rates.

The Y-man
 
- open a First Home Saver Account (FHSA) with the Members Equity Bank which has no fees, gives a monthly statement and pays the best interest of the banks we compared; and

It would lapse into superannuation if she cannot buy anyhow which is not such a bad thing I guess. Some do it tough.

I would steer clear of this account for precisely that reason. If she is able to amass a large sum of money and for whatever reason is unable to purchase a home, she would loose access to that money.

Best thing would be to look for something like Yman has suggested or perhaps an online high interest account.
 
Unless she has an stable job and been working for some time ( 3+ years same industry), i would stay away from the FHSA; even though it pays good interest if a home is not bought within x number of years it defaults to the super....a bit of a waste for her age.

Keep it in a online saver with high interest; that why she can access the funds if required.


Regards
Michael
 
Hi Fisherman

Your young friend is to be commended for wanting to establish her long term independence

Some lenders will take Benefits as stable income for the servicing of a loan provided that the Benefits are to continue for at least five (5) years

Her best plan of action is to determine her potential borrowing capacity based on her current income, and then to save the ‘mortgage payments’ (less the board she is currently paying) on a regular basis

This then establishes – over a period of time – that she is capable of meeting the commitment and capable of living on the remainder of her income

In all States there are pockets where property can certainly be bought by low income earners. If she is not tied to a locality ie commuting to a job, then she has the opportunity of being able to purchase where she can afford to buy

With regards to saving, in my opinion she should avoid the temptation of involving herself with incentive programs. All that glistens is not gold. The incentive ‘savings’ plans can backfire with disastrous results – the savings being converted to superannuation, for example, could lead to many tears before bedtime.

KISS is always a great principal to work by. Keep it simple, save the mortgage payments, establish a regular savings pattern (not glamorous, not quick and not always easy to do) and time will take care of the rest.

Good luck to her and she will be successful if she keeps it simple.

Cheers
Kristine
 
Out of curiousity, for what reason is she on a disability pension?

Depending on the reasons she's at home, there may be a wealth of work that she would be able to perform from home to enable her some income.
 
Thanks to all for your valued replies.

I was thinking that anyone on DP would be highly unlikely to be able to afford anything outside of in the country, if at all. Also that the default of money to superannuation wasn't such a terrible thing with almost certain severe restrictions on welfare in the future. I am a self-funded retiree myself from starting early with superannuation and saving long, which colours my judgement. However in some - this young women, myself and many on this site - the motivation to own our own shelter is strong and there are obvious benefits.

From what we are aware she is only able to put away some money through family support (for how long?) and very restricted spending - no pre-prepared foods, few clothes (buys secondhand) and nothing 'wasted' on a social life.

Any suggested online savers or managed funds?
 
Hi fisherman

One important factor with your young friend is that she is already 'financially independent'.

Her Benefit arrives like clockwork and she does not have to 'do' anything to receive it.

Many Senior Citizens look forward to receiving the Pension for that very reason. For the first time in their lives, they will receive atleast a subsistence income without having to work 40 hours for it.

What your friend wants to do is to have tenure in her own property. This surpasses any lease or other living arrangement, as the decision is then hers as to where she lives and how long she wants to live there.

Tenants - of whatever variety - do not have the same tenure as an owner occupier has.

Are you able to advise what is her actual income - once she owns, she will no longer receive Rent Subsidy, so her actual ongoing income would be helpful. When she knows what she can service / borrow she can then make the financial plans towards what she can buy

At the moment she seems to be living a very restricted lifestyle and yet this deprivation may not be necessary, or may be pointless, if she doesn't know what her income will eventually allow her to do.

Regards
Kristine
 
Hi Kristine,

No I haven't enquired about her income. I assumed 'full' DP whatever that is and it would not be much.

I can see why an intelligent young person wouldn't be looking forward to always being caught in the welfare trap, but as you identify (and we would agree) restricted spending doesn't make up for lack of income.
 
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