Young more interested in Apple gadgets than home savings
FIRST Home Saver Accounts Scheme (FHSA) were wonderful products for people saving for their first home.
Launched with fanfare by the Rudd government on 1 October 2008, the initial expectation was a take-up by over 750,000 first time buyers, with a total cost to the government of $6.5 billion.
The figures were way out. - only 46,000 accounts were opened in total - and just 800 in the last six months.
Factors that contributed to the lack of enthusiasm for the accounts include the perceived four year lack of access, and general inertia by young people, who are usually far more focussed on the latest release from Apple than on their finances.
The low take-up rate is further proof that the financial literacy of young Australians leaves much to be desired. The features offered by the accounts were almost too good to be true.
It was a no brainer for first home owners buyers. The government was prepared to contribute 17% on the first $6000 of funds deposited each year until the balance reached $90,000.
This was equivalent to a capital guaranteed tax free return of 17% per annum.
Furthermore the interest on these accounts was taxed at just 15%, the same as superannuation. If a first home saver deposited $6000, and received $180 interest for the financial year, tax would take just $27, leaving them with $153 in addition to their $1020 from the government.
This is a total after tax return of 19.6%.
Well, as the old saying goes "what you don't use you lose" - the scheme was terminated in last week's budget. Any new accounts opened from 7:30pm on Thursday May 2014 will not receive any concessions or government contribution.
The news is all good for existing account holders. Even though for them, the government contribution will cease from 1 July 2014, all restrictions on withdrawals will be removed from 1 July 2015.
From that date the accounts will be treated like any other savings account and savers can withdraw their money when they like, for whatever purpose they choose.