Barring a major overhaul in policy, younger Australians are facing a lower quality of life than their predecessors for the first time in decades. It has nothing to do with the odd turmeric latte here or there.
The concept of ‘settling down’ for anyone who grew up with a mobile in their hand isn’t the same as what it was when panel vans were trendy, or a Chiko roll was considered a dietary staple.
History isn’t repeating itself
Sure, we’ve had booms in the past, but in the last two decades house prices have increased faster, and for longer than ever before.
According to the Grattan Institute, it’s sinking in fast that a lot of young Australians will only be able to afford housing that’s smaller or of a lesser quality than the house they grew up in.
It seems as though Gen Z Australians and Millenials have dipped in net worth compared to their forebears. The generational wealth gap is only getting wider, kids.
Note: Check out our previous piece on the Grattan Institute’s generational gap report here.
The dream is over
“For those under 40, the ‘Australian dream’ of owning a property has been an increasingly challenging prospect”, says Billie Christofi, founding director of Reventon Finance & Investments.
Since mid-March, Christofi says, 11.8% of jobs for those under 30 have crumbled under the Coronavirus pandemic’s economical massacre of the Australian workforce.
“The class of 2020 have now officially graduated into the country’s first recession in 29 years, and many have raided their scant super funds at the worst possible time.”
“It’s no wonder an influx of young Australians are turning into ‘boomerang kids’, moving back home with their parents as a way of coping financially,” she says.
“The harsh reality is that most young Australians simply don’t have enough capital to afford a house deposit on their own. And now, with many placed on JobKeeper or JobSeeker subsidies which the banks look down upon, the way we look at investing needs to change.”
Australian house prices are an enormous 16 times the median wage, versus four times in the 1980s.
With a median household income of $48,360 and properties costing an average of $788,000, it’s not surprising young Australians are feeling locked out of the dream.
It’s not you, it’s them
“The gap has been substantially widened”, Dominic Beattie, editor of Savings.com.au says, “by steep property price rises around the country in recent years given that older generations have much higher rates of home ownership.”
“Understandably, younger generations fear having to work longer for lower wages and higher taxes only to retire later with less wealth. Many may face the prospect of retiring without a home of their own, or while still paying a mortgage.”
“It’s so tough for young people right now,” says Christofi. But now is the time to take action, reclaim control and start looking at financial options you might not have considered before.”
The new Australian dream
Christofi recommends Millennials and Gen Z consider one of three investment options: “rentvesting”, joining a property syndicate or partnering up with an investing buddy.
“Rentvesting” is about buying where you can afford and renting where you choose to live. Life is short so, by “rentvesting”, you can still live the lifestyle you want while making contributions to your savings through an investment purchase elsewhere,” Christofi says.
“It’s so tough for young people right now. But now is the time to take action, reclaim control and start looking at financial options you might not have considered before.”
“Don’t put your eggs in one basket.” Thanks, Dad.
Brad Macaulay, director of Investment Zone, recommends a diversification ethos and considering numerous options for saving for retirement that don’t involve homeownership.
“Just because it is traditional, doesn’t necessarily mean it is the right approach for everyone. There are certainly many other forms of investment and other frameworks for saving; and I believe even more will be created through technology we have at our fingertips”, he says.
“We need to tailor financial advice towards younger people in a way that appeals to them, resonates with their values, and meets their needs, all in the context of the current economic climate.”
Beattie thinks younger generations could benefit from better education on how to invest, and a lot earlier.
“In pure wealth terms,” he says, “recent research suggests people aren’t always better off buying a house, particularly when house prices aren’t growing so fast. Some renters can grow their wealth faster than homeowners by consistently investing their savings in high-growth assets such as shares and equities.”
“Education is key. This means talking about money at home and in school. When it comes to economic cycles, history can teach us a lot about the future; so if children hear about their parents’ experience with money, and growing, saving and protecting wealth, it will become second nature,” Macaulay says.
So there you have it.
It’s a grim take on what’s set to come in the coming years, but perhaps it might teach us to be a little kinder to the young.
Let us have our avocado toast, though, while we figure out where to put our eggs. It’s all we can afford.