Understanding Debt, Superannuation, and Financial Responsibilities

Posted on Jan 24, 2024 in Economy

Debt

Debt: A sum of money that is owed or due. Debt is something, usually money, owed by one party to another. Debt is used by many individuals and companies to make large purchases that they could not afford under other circumstances. Unless a debt is forgiven by the lender, it must be paid back, typically with added interest. The most common forms of debt are loans, including mortgages, car loans, and personal loans, as well as credit cards.

Secured Debt

Secured debt requires security. This may be property, inventory, or other types of assets. If the loan can’t be met, the lender may rely upon the assets to clear the outstanding balance, interest or fees. The interest rates are usually lower, and the term is usually longer, with high borrowing limits.

Unsecured Debt

Unsecured debt doesn’t require any physical assets as security. Instead, your lender will often look at your creditworthiness, which is indicated by your credit score and credit history. The interest rates are usually higher, and the term is usually shorter, with low borrowing limits.

Superannuation

Superannuation is a way of saving for retirement. Your employer must pay a percentage of your earnings into your super account, and your super fund invests the money until you retire.

Goods & Services Tax (GST)

Goods & services tax (GST) is a tax of 10% on most goods, services & other items sold or consumed in Australia. Registered businesses need to add the tax onto the price they charge for goods & services. The government distributes the GST revenue collected to the states & territories to pay for public services & infrastructure, such as hospitals, roads, & public school. Some things don’t have GST included these R called GST-free sales. These include basic food, some education courses, some medical services, childcare services, religious & charitable services, water & sewerage, duty-free shopping, international transport & mail, & exports There are two methods for calculating GST. The 1st method is calculating how much GST is to be added onto the original purchase price. For this method, U will need to add 10% on top of the original purchase price. For example, $20 x 10% = $2. Therefore, $20 + $2 = $22. The 2nd method is used when calculating how much GST was paid on a total price. For this method, U will need to divide the total price by 11. For example, $300 ÷ 11 = $27.27 GST paid.

Financial Responsibilities

U may benefit from doing a budget before moving out. This will help U to work out if U can afford to move out of home & meet your new living expenses. It will also help U to keep track of what U R spending & to plan for unexpected & ongoing expenses. It is a good idea to set aside m1y each month to budget for these ongoing expenses, as well as a bit extra for household emergencies. Expenses 1-off expenses: Removalists, rental bond, connection fees, furniture & appliances. Ongoing expenses: Food, bills, rent, entertainment, transport & insurance.

Formal & Informal Arrangements

Young people moving out of home often choose to share with housemates to save m1y. For example, splitting rent & household expenses in a 4-bedroom house with 3 other flat mates could be cheaper than renting a 1-bedroom unit alone. Housemates need to agree on formal arrangements such as:

  • Who signs the tenancy agreement (lease) 

  • Whose name/s will appear on utility bills

  • Optional contents insurance cover.

   They will also need to discuss informal arrangements like: 

  • Splitting the cost of utility bills

  • Dividing the rent & bond

  • How bills & rent will be paid

  • How to cover the cost of furnishing the home

  • Sharing the cost of groceries or buying individually

  • Responsibilities for household chores

Moving out of Home

Formal & Informal Arrangements The key thing to remember is that formal living arrangements involve contracts that need to be signed. These contracts include binding financial & legal obligations. For example, even if the cost of the electricity bill is equally split between housemates, the person (or people) who signed the contract is legally responsible for paying the total bill. If the bill is not paid within an amount of time, the debt may affect the credit rating & future renting references for whoever has signed the contract. It is important that young people understand & agree to all terms & conditions included in formal contracts, & that they do not sign a contract until they do so. Informal living arrangements R simply agreements made with a shared understanding between housemates. People can generally change their mind about the arrangements without legal consequences. There are normally no contracts & no legal ties.

Car Expenses

Car Expenses The costs involved with buying a car R more than jst the purchase price. For 1-off expenses, such as: purchase price, stamp duty & transfer of registration fee (where applicable). For annual & ongoing expenses, including: registration, compulsory car insurance, optional car insurance, loan repayments (if applicable), fuel, parking, car maintenance, & car servicing (for periods not covered by warranty if applicable). Car insurance can cover the cost of your car if U damage it, it is stolen, or if any1 is injured. If there is an accident involving your car, U could have to pay for the costs resulting from injuries to yourself/others, damage to your car/other vehicles & damage to any property U hit. There R many different types of insurance available when U buy a car. These R called insurance policies. Some basic car insurance is compulsory when U register your car (Compulsory 3rd-party (CTP) Insurance).

3rd-Party Property

3rd-Party Property Covers damage caused by your car to other people’s property, as well as your own legal costs. Does not cover costs of repairs to your own car or replacement of your car if it is stolen. Third-Party Property, Fire and Theft Covers damage cause by your car to other people’s property, & limited cover for loss of damage cause to your car due to theft or fire. Does not cover cost of repairs to your own car or if it is damaged in an accident..

Comprehensive

Comprehensive Gives you the most cover but is also the most expensive type. Covers damage to your car and damage to other people’s property if your car is in an accident, including fire. Also covers theft.

Stamp Duty

Stamp Duty: Car buyers must pay stamp duty whenever they buy a new or used car. The amount changes based on the type of car, but it is roughly around 3% of the total cost.

Motor Vehicle Tax

Motor Vehicle Tax: This tax is paid for by owners of all registered vehicles. The amount is paid for each year through your car registration fees. The amount differs depending on where you live, and the type of car you own.

Luxury Car Tax

Luxury Car Tax: This tax only applies when you purchase a car through a dealership. The tax applies to any car with a purchase price over $64,132 (including stamp duty). The luxury car tax rate is 33%.

Income

Income: Money received for work or through investments. Examples: Wages or government benefits (Centrelink), profit from your business, bank interest (from savings or term deposits), share dividends, investment income (property, share markets, cryptocurrency), gifts, or inheritance.

Expense

Expense: An outflow of money to another person or business as a payment for a good or a service – e.g., Food, Phone Bill, Rent. Examples: Groceries, bills (phone, electricity, water, gas, internet, etc), rent or mortgage, clothes, entertainment (computer games, Netflix, airpods, restaurants etc), transport (running costs for a car or public transport tickets).

Work-life balance

Work-life balance is defined as the amount of time you spend doing your job verses the amount of time you spend with loved ones or pursuing personal hobbies and interests. A good work-life balance means that you can be happy and productive at work and have time for yourself and your family.

Working long hours

Working long hours can have adverse effects on your health and wellbeing. It is important to prioritise your wellbeing, which is often seen as being less important than working. People who haven’t quite grasped the perfect amount of work-life balance often are affected by burnout. Burnout is when you are mentally and physically exhausted for extended periods of time. You often have a lack of interest in work, or even avoid attending work. You may also feel overwhelmed or emotionally drained.


Burnout can cause physical symptoms such as stomach pains, headaches, and sleep disturbances. It can make it hard to concentrate and lead to negative feelings about your workplace or colleagues. You may also lose confidence in your own abilities. Permanent Work – Employment with the promise of ongoing work (or for a guaranteed period of time). Full time – typically 38 hours GUARANTEED per week. Part time – minimum of 3 hours guaranteed per week. Both full time and part time employees are entitled to annual, sick and personal leave. Casual Work– No guaranteed hours of work. Usually works irregular hours – can be 3 hours one week, 0 hours the following week and 20 hours in the third week. Employees can end employment without notice. Not paid annual leave or sick/personal leave – although the Victorian Government has introduced paid sick leave for casual employees as a 2-year trial in some industries. Received a higher HOURLY rate of pay than permanent employees – to compensate for not receiving annual or sick leave and not having guaranteed work. Industrial Awards- they set by government body. They outline basic working conditions of a specific industry. They grant all wage earners in one industry or occupation the same minimum pay rates and conditions of employment, as well as other workplace related conditions .Conditions include: leave entitlements, overtime, and allowances. Corporate Social Responsibility (CSR) refers to the way in which a business demonstrates some commitment to their community beyond that imposed on it by laws. Examples can include:

  • Businesses developing policies to ensure that women have equal ability to
    that of men to progress to senior management positions.
  • Supermarkets not using single-use plastic bags.
  • Banks commit to investing in projects that benefit the environment and
    community and decline investing in projects that are negative for the
    environment. E.g. Adani Coal Mine
  • Businesses using renewable energies to power their equipment to minimize
    their carbon footprint.

Innovation refers to changing or creating more effective processes, products and ideas, and can increase the likelihood of a business succeeding. Businesses that innovate create more efficient work processes and have better productivity and performance. For businesses, this could mean: implementing new ideas, creating new/dynamic products, improving your existing services. Innovation and inventing are not the same thing.                  Advantages of innovation include:

  • Appeals to customers
  • Sets you apart from the competition
  • Makes you more efficient
  • Reduce costs in the long run
  • Can be environmentally friendly
  • Can create new employment opportunities               Disadvantages of innovation include:
  • High start up cost, reduces profit in short term
  • Time to implement
  • Inefficient while training staff
  • Staff being terminated
  • Lose customers in act of innovation
  • Conflict between stakeholders
  • What if it doesn’t work                                         Competitive advantages are conditions that allow a business to generate more sales or higher profits than its competition. Competitive advantages include cost of materials, brand, quality of product offerings, choice of suppliers, and customer service. Types of Competitive Advantage- Differentiation This is the type of advantage that allows businesses to stand out from the crowd . Price This is the type of advantage that allows businesses to be comparatively cheaper for the same or similar product Increasing Competitive Advantage ; People – hiring people with the right attitude and passion (Customer Service). ; Marketing – impactful advertising can affect the choices consumers make. ;Cost leadership – lower costs = higher profits ; Price strategy – large businesses can afford to charge lower prices due to volume sales. ; Social responsibility – consumers are enticed by environmentally conscious businesses. Why is it important? To meet the changing demands of consumers (Giving customers what they want!)  Achieve efficiencies (To avoid wasting energy, materials, money, effort & time) Lower costs (Less wastage amounts to less money being spent) Improve their profit margins (Less money being spent amounts to higher profits) Without a distinct competitive advantage, a business will stagnate or, at worst, decline into non-existence.  Globalisation is a process of interaction between the people, companies, and governments of different countries. It is sometimes described as the opening of borders. Interactions include exchanges of goods and services, exchanges of property, employment, and sport. Advances in transportation, telecommunications and infrastructure have been major factors in the increase of globalisation.  Advantages of Globalisation:
  • Worldwide access to information, ideas, and goods & services – when people have greater access to other countries their standard of living improves. Examples include, medicine/health care, nutritious food, entertainment, morals/ideas, electronics.
  • Countries can specialise in areas of expertise – if a country specialises in a particular field, they can use this as their main export. They can lower the costs with efficiency in their work and therefore charge a lower price to consumers.
  • Lower labour costs by outsourcing work – companies based in the developed world (Australia, USA, New Zealand) can utilise the lower wages of workers in other countries to produce goods and services. E.G. Call centres & clothing
  • Greater access gives opportunity for poorer countries to develop – outsourcing gives people in developing countries the ability to earn a wage.  Disadvantages of Globalisation:
  • A more rapid degradation of resources – due to an increase in the demand of goods and services, there will be a higher demand for materials to produce them. Trees will be cut down, water will be used, flattening of forests.
  • Exploitation of disadvantaged nations – while workers in disadvantaged nations will be paid for their work, they may be paid a very low amount of money and still be below the poverty line.
  • Power and influence of multinational companies can be detrimental – some multinational companies are more wealthy than some of the most disadvantaged countries in the world. Money can lead to corruption and other negative consequences.
  • Loss of low-skilled jobs in developed countries – due to clothing and call centre jobs being taken by people in countries like Bangladesh and India, people in developed countries like Australia and USA will face the risk of being unemployed.    Needs: An item necessary for survival. Examples: Shelter, water, food, clothes. Wants: An item that is not necessary for survival, but increases our enjoyment in life. Examples: Mobile phones, games, books, furniture. Economy The state of a country or region in terms of the production and consumption of goods and services and the supply of money. Economic growth is defined as the increased volume (value) of goods and services produced by an economy over a period of time. Economic growth can occur due to population increases, replacing existing goods and services, and the desire to continually improve the quality of products. Economic growth is important as it helps the economy by increasing the supply of goods and services. Demand is consumers desire for a product at a specific price. As a whole, consumers will desire more of a product as the price decreases. Demand is treated from the perspective of the consumer. Shifts in the Demand Curve The price will stay the same but the quantity demanded will change. Therefore the demand curve must shift to the left or right.  Supply refers to total amount of product available for purchase at a specific price. Producers will make more of a product available as the ability to generate a profit rises. Supply is treated from the perspective of the producer.  Shifts in the Supply Curve The price will stay the same but the quantity supplied will change. Therefore the supply curve must shift to the left or right. Goods are visible/tangible things people buy. can either be durable or non-durable. Durable goods: are those goods which last a long time. Non-durable goods: are those goods which perish in a short period of time. Examples: Water bottle, mobile phone, tables, books. Services are intangible things that somebody does for you. They may wash your car or fill in your tax return. You don’t receive an item but you pay for a person to complete a task. Examples: Hairdresser, doctor, accountant, teacher.  Exports are when goods are produced in one country and sold to another. Examples include sending meat, dairy or cars. Inflation when the cost of a good or service increases it represents a loss in value of the money that we hold. When a price of a good or service increases, it is called inflation. Inflation is defined as a sustained increase in the general price level of goods and services in an economy over a period of time. How does inflation work? Inflation results in the decreased value of money over time. Each dollar will buy less goods and services as time goes on. In order for people to maintain the same standard of living, wages and salaries need to increase at the same rate as the inflation. Inflation in Australia is measured by calculating the change in the Consumer Price Index (CPI). The CPI measures the total price of the essential goods and services used by most households. The average inflation level is 3% p.a. The items considered for measurement in CPI include; food, clothing, housing, household contents and services, transport, recreation, financial and insurance services, communication, alcohol and tobacco, health and education. Free (pure) market economy An economic system where all of the economy is driven by the consumer and their needs and wants. Businesses will only produce goods and services that are demanded by consumers. Individuals own the resources and there is little government interference. Benefits of a free market economy High Competition Amongst Business- Drives innovation and high quality output ;  Government involvement is usually very restricted or non existent ;  No restrictions on goods and services- A large variety of goods and services is available and consumers are free to choose the goods and services they want. Limitations of a free market economy Businesses are heavily profit driver- Therefore the distribution of wealth will be unequal ; Infrastructure and welfare not provided by the government- Public roads, schools, postal services, hospitals ; Consumers may be exploited- No protection is provided by the government. Eg. Monopolies.