💸Spend or Save? + Part Time Job Pay + 🏦 RBA Rates

The money stuff that you wish they taught in school

You know when you’re in class and someone asks a question and you go:

• “Oh, I was going to ask that” or,

• “Oh, I didn’t have that question before, but now I want to know the answer to it”

That’s what this is supposed to be like (but with money stuff, not English or Biology).

The format of this newsletter is simple:

• 3 questions from teenagers and young adults like you and my answers.

• 💬🤔 Got your own question about money that you want to ask? If you send it through this week there’s a good chance you’ll get an answer next week! You can submit it here (and it can be totally anonymous if you prefer 🙂).

• To find out why this newsletter exists (and a little about me), you can read the FAQs.

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Your Questions & Answers

• 💸 Spend or Save?

• Part Time Job Pay

• 🏦 RBA Rates

💸 Spend or Save?

Q. “Hi, I’m 13 about to turn 14 and I have got a job. I work 2 and a half hours a week and earn a good amount above minimum wage. All my friends tell me that i should spend my money but I don’t really know what I should do and if I should spend it or if I should be saving it.”

-Lily, 13, NSW

Answer

Hey Lily, thank you for writing in and congrats on getting a job! 2.5 hours a week sounds like a great amount of work for your age. It means you can balance it with school stuff, sport and downtime to just do things you enjoy, which are all really important.

The simplest answer to your question is: “both!”

• There’s no point having money just to save ALL of it. That’s no fun. Having money gives you the chance to spend it on things that make you smile, or that you’re interested in. And working to get money means you’ve earned the chance to do those things. 

• Spending all of it isn’t ‘bad’ or anything like that.  

• BUT saving some of your money every single time you get paid is an EXCELLENT habit to start right now. 

It’s what I started doing when I started working part-time. And I’ve done it ever since then. My wife does it too. That meant that when we wanted to buy things that were bigger (holidays, a house) those savings were always there to use.

So how can you do it? I’ll give you 3 simple steps you can try:

1. Step 1. Figure out how much you want to save of every pay. The best way to do this as a percentage of your pay (not a dollar amount). For example, my wife and I save 20% of every pay. Another way to put that is we save 20 cents of every dollar, or $20 out of every 100. You might choose to save more (like 40% or 50%) but that’s totally up to you. If you decide how much you want to save (in percentage terms) but aren’t sure how to work it out, just write in again and we can go through it next week. 

2. Step 2. Make it automatic. Set up a different bank account to the one you get your pay into. Your pay one is your ‘everyday’ one that you spend from. You savings one is a totally different one that is only for savings. Set it up so the percentage you chose to save is transferred to that savings account automatically every time you get paid. 

3. Step 3. Repeat. Every week!

I hope that helps with your question and I hope you’re enjoying your job!

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Part Time Job Pay

Q. “Hi Ry, I was wondering when can I get a job and where would it most likely be? What would it earn?”

- Jake R. 13, QLD

Answer

Hey Jake, sounds like you’re pretty keen to work! Very cool. Let’s break this up into 3 short parts:

• Part 1: When can you get a job?

• Part 2: Where would it most likely be?

• Part 3: What would it earn?

Part 1: When can you get a job?

I looked up the rules in Queensland for how old you have to be to legally get a part-time job. Here’s what they say:

• You can work from the age of 11 if you are doing a job with the supervision of your parents. This is for things like delivering newspapers or flyers to people’s letterboxes.

• For other kinds of work, the minimum age to get a part-time job is 13. 

Part 2: Where would it most likely be?

It’s most likely you’ll be working in one of two areas: retail or food service. Retail includes places like Woolworths and Coles and basically every shop you can see in your local Westfield.

Food service is going to be places like McDonalds, Grill’d, GYG and Boost.

Why those places? Because those are the ones that employ a LOT of people, including teenagers. Plenty of people (including me and pretty much all of my friends) worked in one or more of those jobs over the years. It’s a good experience, you learn a lot and you hopefully get to work with some good people who you wouldn’t have met otherwise.

Small catch though: most employers have a minimum age for people who work there. Often this is something like 15 years old. Something to keep in mind. 

Part 3: What would it earn?

Honest answer? Not very much. That’s because part-time job pay is based on age. The younger you are, the less you get paid. So for the two areas of work above, a 15 year old would get about $12 per hour. 

The good news is that amount goes up by about $2.50 per hour, every year on your birthday, until it reaches the maximum of $25 when you’re 20. 

If you’re really keen to save some money but aren’t going to start a part-time job with an employer yet, maybe think about some things you can do in your community like walking dogs, washing cars or mowing lawns. That way you can choose your own jobs and hours and stop when you need to focus on other stuff.

Hope that information is helpful mate!

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🏦 RBA Rates

Q. “How does the RBA and interest rates work? I've heard that it has to do with banks borrowing money, but banks have more than enough money so why would they borrow more from the RBA? I know that rising interest rates are all over the news at the moment.”

-Tom, 24, NSW

Answer

Hey Tom, great question. I reckon the Reserve Bank of Australia (RBA) and interest rates are something that most people hear a lot about, but that they don’t fully understand. Let’s see if we can break it down a bit.

To answer your question we need to know two things:

• What the job of the RBA is, and,

• What tools they have to do that job.

What is the job of the RBA?

The RBA is what’s called a ‘central bank’. It doesn’t borrow and lend money like a regular bank. 

But the RBA has a bunch of jobs. The most important is this one:

“to achieve the goals of price stability, full employment and the economic prosperity and welfare of the Australian people.”

So what does that actually mean? In practice it means two things:

• “Price stability” means keeping inflation between 2% - 3%.

• And “full employment” means keeping unemployment around 4% of the working age population.

The RBA’s Tools

The RBA has one main tool to do its main job of keeping inflation and unemployment low: interest rates. It sets interest rates (also called the ‘cash rate’). 

The basic relationships between interest rates, inflation and unemployment look like this:

• If inflation is HIGH and unemployment is low, then the RBA will RAISE rates. 

  • That’s because higher rates mean less spending and eventually, lower inflation.

• If inflation is LOW and unemployment is high, then the RBA will CUT rates. 

  • That’s because lower rates mean more spending, and eventually, higher inflation and lower unemployment. 

The other thing to know is that interest rates and their effects are like eating soup with a dessert spoon: the tool does the job, but it just takes a long time.

The ‘interest rates’ or cash rate set by the RBA (and every other central bank) are the most important number in the economy. That’s because interest rates set the price of money. The price of money is interest rates. And regular banks use the cash rate to ‘price’ the money they lend out to you and me.

• When rates are low, money is cheap. 

• When money is cheap, people spend more. Inflation goes up. Unemployment goes down.

• When rates are high, money is expensive. When money is expensive, people spend less. Inflation goes down. Unemployment goes up.

A Practical Example

Why do people spend less when rates go up? Mortgages are a good example to use. They’re just a big loan that banks give borrowers to buy a house.

When the RBA raises rates, then banks raise their mortgage rates. If you own a home and have a mortgage, you make mortgage repayments to pay off the loan the bank has given you.

• If interest rates go up, your mortgage payments go up. And if you have to pay more towards your mortgage than before, then you have less to spend on a new car, renovations or a holiday. 

• When the RBA cuts rates, banks cut their mortgage rates. In that scenario, everything in the scenario above is reversed. People have more to spend.

The cash rate doesn’t just impact mortgages. It also impacts the cost of business loans, car loans and HECS debt. I wasn’t kidding when I said the cash rate was the most important number in the economy.

Back to Your Question

So, that means interest rates are less about commercial banks depositing or borrowing money with the RBA and more to do with the price of ALL money in an economy. And the price of money influences important factors like inflation and unemployment.

It’s a complicated topic, but I hope this explanation helps to make sense of some of it. If not, I’m happy to get a follow up question (from you or anyone else who wants to know more).

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Thanks for Reading

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