First National Bank Trust Services has advised graduates about to make their debut in the local labour market this year not to be caught up in the euphoria to splurge, but to think of developing a financial plan.
“With so many graduates expected to find employment this year, there is a need for them to start thinking hard about drawing up a financial plan for their future,” Visser Angelique said.
According to the Department of Education, the country’s institutions of higher learning produced 124 676 graduates in 2006. The 2007 statistics will only be released in April. However, the department expects these numbers to increase since the student enrolment numbers have been on the rise.
It is now easier for an Engineering, Accountancy and Information Technology graduates to earn a starting salary of R15 000. This makes them an attraction of financial institutions, which bombard them with a plethora of offers of credit.
Visser said, “most of them are easily swept from their feet by the sudden attention by financial institutions.”
Many get tempted and end up biting more than they can chew! And some burn their fingers.
She says a financial plan when a graduate gets their dream job helps one to focus and sometimes shields them from insolvency.
She says the first step is for students who have a student loan to start servicing the loan.
“Student loan repayments must kick in from the first pay cheque.” she said.
Depending on personal circumstances, the second step may be to start investing in a Retirement Annuity (RA) to provide or augment pension. RA’s have a tax benefit.
Industry statistics show that only 6% of South Africans will have enough money to retire on. The rest will depend on the government social grant safety net and from their children and family members at retirement.
If there is any debt, for instance student loans, she advised them to consider buying a life cover. This will ensure that all the debts that one leaves behind are taken care of. The advantage of taking out a life-cover at a young age is the premium is cheaper.
Since these graduates would start accumulating assets, Visser said it is a very good time to start with Estate Planning; a process which will be ongoing as personal circumstances change often, for instance getting married, buying your first home, having children, changing jobs or starting a business.
One of the most important steps is to draw up a Will.
A Will is a legal document that stipulates how the assets one leave behind are to be distributed and to whom. It is also recommended to advise the trustees of your pension fund who your nominated beneficiaries are. This information can also be recorded in your Will.
As part of the estate plan, a needs analysis will be done and it may be necessary to set up a living trust.
A Trust is often a useful tool for estate planning as assets with a high growth potential accumulate value in the trust and not in one’s own estate. The benefit of setting up a trust at a young age is that a person has the advantage of many years to make use of allowable donations and ensuring the growth is not in your own estate.
For setting up a trust and drawing up a will, graduates must seek professional help.
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