background

This case study involves Jess and her parents George and Jenny. Jess is a 20-year-old student at the end of her second year of a five-year architecture degree. She decided to study in Brisbane and has had to learn to look after her own finances after leaving her home town of Rockhampton. Like most of her peers, Jess has been studying fulltime and working part-time to support herself. Jess shares a flat with a university friend and pays rent of $800 per month. She estimates that her other monthly expenses, on average, include public transport fares $200; food $440; utility bills $90; mobile phone $60; clothing $50; and miscellaneous expenses $80. Jess has had a good work ethic from a young age. For the past four years, she has worked in different industries and with different employers in a number of casual or part-time jobs while managing her high school and university study. On average, she earns $25 per hour and she works approximately 80 hours per month. Although retirement is not something that she has spent much time thinking about, she does realise that she has many superannuation accounts, each a result of the different companies she worked for. Currently she has three superannuation accounts, namely AMP Flexible Super with $4,300; Rest Super with $3,400 and Hostplus with $1,800. Jess's father, George, aged 58, and mother, Jenny, aged 54, both still live in Rockhampton and are working. George has been working as the General Manager of a farming machinery company for the past 20 years. His before-tax salary package was $125,000 per year plus superannuation. Jenny works part-time as a school teacher, earning $40,000 per year plus superannuation. Both George and Jenny enjoy their work and are keen to continue their roles for as long as they are healthy to do so. Besides Jess, George and Jenny have two younger children, Simon, 15 and Emily 13, who are attending private schools. George also has an adult daughter, Sarah, who is 30 years old and has recently separated from her husband. George and Jenny are supporting their two younger children with their education. They would also like to be able to provide monetary assistance if needed to all their children, including supporting Sarah with any legal fees or financial help 3 she might need. Both George and Jenny have Wills which were prepared in 2002. They do not have powers of attorney.

Jess's goals and objectives: Jess's main goal is to go travelling overseas for a year when she finishes her degree. She estimates that she will need about $22,000 for the gap year. When she comes back from overseas, she would like to work full-time in Brisbane. She estimates that once she starts working, she can save $1,000 per month for the first two years and $1,500 per month for the next three years. Rather than saving to buy property, she wants to invest in the share market by building a portfolio of equities. She would like to be able to invest at least $100,000 and is open to borrowing to increase the size of her returns, but she hasn't thought that through as yet.

Requirements

Part A - Advice for Jess (10 marks)

You are required to provide written advice for Jess to help her achieve her goals and

objectives. Specifically, your advice should be structured by answering the following:

1. a current monthly budget for Jess' income and expenses and indicate whether

her budget produces a surplus or deficit (ignore tax for the purpose of this case study).

(0.5 marks)

2. Using either a diagram or in table, clearly state Jess' goals on a timeline with detailed

projected cash flows, and calculate the future values of the savings (assume all savings are

invested monthly and interest rate is 6% per year). (2 marks)

3. Based on your calculation in 2 above, comment on whether Jess will be on target to meet

her first goal. Suggest some budgetary measures to help Jess to increase her savings. Is

there any other advice you would may offer Jess to assist her to achieve her first goal?

(2.5 marks)

4. Compare and contrast the advantages and disadvantages of share investment with other

asset classes, e.g. property and fixed interest securities. What investment

recommendation would you make about Jess's savings plan once she begins working full-time? What would you advise her with regards to borrowing in the future? (3 marks)

5. With regards to Jess's multiple superannuation accounts, what advice would you provide?

In forming your advice, please clearly state the issues that Jess needs to consider before

undertaking any action with her super. (2 marks)

Part B - Advice for George and Jenny (10 marks)

In relation to George and Jenny's risk management profile and their estate planning processes

to date, outline your areas of concern and the possible advice you would provide to George

and Jenny in these two areas. To assist you, consider the following:

1. Identify at least six of the risks that George and Jenny face. Define and recommend an

appropriate risk management strategy for the couple. (5 marks)

2. Discuss the estate planning issues that need to be raised with George and Jenny,

including their ability to manage their affairs for each other in the future. (5 marks)