If you think Gen Y and X-ers have it easy, the findings of ME’s ninth biannual Household Financial Comfort Report might surprise you.
Throughout history, each generation seems to enjoy pointing the finger at the generation that follows and label it everything from lazy and over privileged to selfish and narcissistic. At the moment, it’s in vogue for Gen Y to be labelled spoilt and materialistic, the generation that has had everything it ever wanted handed to it on a silver platter.
But the findings of ME’s ninth biannual Household Financial Comfort Report suggest that this cliched Gen Y bashing is actually far from the truth. In fact, the survey showed that while the financial comfort of older Australians has been rising since 2011, the financial comfort of younger generations has remained relatively unchanged.
Let’s take a look at why that’s the case and determine what it means for Australia’s younger generations in coming years.
The widening generation gap
The Household Financial Comfort Index is designed to put a number on how comfortable Australian households feel about their financial situation. In a survey of 1,500 Australian households, respondents are asked to rate their household financial comfort, expectations and confidence on a scale from 0 to 10 across a range of factors.
The 9th survey, with data up to December 2015, showed that Australia’s older generations were much more financially comfortable than their younger counterparts. While the comfort of ‘builders’ (aged 75+) and ‘baby boomers’ (aged 50-74) has improved by 16% to 6.38 and 14% to 5.85 respectively since October 2011, ‘Gen Y’ (aged 18-34) and ‘Gen X’ (aged 35-49) are still sitting at roughly the same level of financial comfort they were four years ago, up only 2% to 5.56 and 3% to 5.16 respectively.
So why has this generation gap continued to widen over the past four years?
The report’s findings suggested the disparity was in large part due to the investments Australia’s older generations hold in real estate and superannuation. While older generations have seen their investments in property, super, shares and managed funds increase in value over recent years, acting as a reliable generator of wealth, members of Gen Y and X haven’t enjoyed the same benefits.
Instead, Australia’s younger generations have a much lower level of ownership of assets and investments. Not only are their investments smaller, but rising housing costs mean that many are still renting rather than enjoying any increase in the equity in their home. So while older generations have enjoyed substantial improvements to their overall financial comfort, Gen Y and Gen X have only seen relatively small changes.
The divergence was seen across all 11 factors of overall comfort, with a substantial difference in the increase in comfort with ‘investments’, ‘debt’ and ‘cash savings’.
Jeff Oughton, ME’s consulting economist and report co-author, said “recent gains in the macroeconomic and financial environment including significant rises in property and equity values, has disproportionately lifted the financial comfort of older generations who tend to have higher levels of asset ownership or investments.
“The findings add to recent policy debates around housing ownership and affordability, and the generosity of superannuation tax concessions for wealthier Australians,” he said.
“They highlight the importance of housing and superannuation as important wealth generators with both contributing to higher levels of financial comfort. They suggest that wealthier Australians may be better able to manage any wind back to super tax concessions, while remaining at a relatively high level of financial comfort.”
Other key findings
ME’s ninth biannual Household Financial Comfort Report also revealed a range of other interesting points, including:
Overall increase in comfort
- Overall, the Household Financial Comfort Index climbed 3% to 5.59 out of 10 in the six months to December 2015. This is the second highest level of comfort recorded in the four years the survey has been held, and sits about 3% above the average of 5.45. The main reason for the rise in the index was an 8% increase in the comfort of respondents with their ‘ability to cope with a financial emergency (loss of income for 3 months)’. The authors of the report argued that this level of comfort was increased by the strengthening of the labour market and a fall in unemployment rates.
Renters are doing it tough
- The financial comfort of home owners (up 2% to 6.64) was still substantially higher than households paying off mortgages (up 5% to 5.52) and especially renters (up 4% to 4.54). The markedly lower comfort for renters may reflect the increased difficulty many first home buyers are having breaking into the property market, with both house prices and rents rising at a faster rate than incomes.
State and territory differences
- All Australian states and territories experienced an increase in financial comfort, except Western Australia, which dropped 2% to 5.11 due to the increasing decline in mining. This was a record low rating for WA and the lowest by far across Australia. On the flipside, South Australia/Northern Territory recorded a substantial gain in comfort, up 14% to 5.57.
Metro more comfortable than regional
- The index also reveals a metropolitan/regional divide in Australia. Households in Australia’s metropolitan areas experienced a larger increase in financial comfort (up 4% to 5.72) than those in regional areas (up 2% to 5.29). Australia’s highest level of financial comfort can be found in Melbourne (up 4% to 5.92), followed by Sydney (up 3% to 5.81).
Self-employed people the most financially comfortable
- Self-employed people were found to be the most financially comfortable sector of the workforce, with a financial comfort index of 5.91. This reflects a much wider improvement in comfort for small businesses across Australia.
Increase in consumer confidence.
- Consumer confidence measures increased roughly to their average levels across the four years of the survey.