Parents from every place, in every era, share something important:
We all want our children’s lives to be better, happier and more prosperous than anyone’s before.
Could the opposite become reality for Australians?
Baby Boomers may well be the first generation seen as wealthier than their children. That’s one of the conclusions drawn from a recent Grattan Institute report titled “The Wealth of Generations”.The huge economic growth experienced during the 1990’s and 2000’s when generation Y were children and more specifically the housing boom from the same period has contributed to Gen Y’s struggles.Let’s take a look at those two factors in more detail.
Wealth distribution between generations
While generation Y were children, older generations enjoyed the economic boom Australia experienced in the 1990’s and 2000’s. Unemployment dropped while incomes rose and Australians improved their overall wealth.
As these younger generations have matured and entered the workforce, they’ve found the distribution of wealth skewed towards the older generations who invested heavily in during the boom. Over 55’s who comprise just 26.9% of the total population now hold 58% of all wealth in Australia, up from 51% that same group held 10 years ago.
On top of this, younger generations have seen their wealth in real dollar terms also drop. While 45 – 54 year olds’ wealth grew by $163,000 (23%), 55 – 64 year olds’ wealth grew by $174,000 (19%) and those aged 65 – 74 saw their wealth grow by a huge $216,000 (27%), those in the younger generation actually lost $10,400 in wealth – a 4% drop.
Note: To put this in context, wealth is defined by an individual’s assets, savings and investments less their debts giving them an overall value of ‘wealth’.
So what caused this dramatic shift in wealth?
Quite simply, the biggest factor is housing, which accounts for around half of a person’s total net worth in Australia.
The graph below highlights the growth in house prices and income since 1970. Up until 1997, income grew at roughly the same rate as house prices. Since that time, average income has only grown 27% overall compared to house prices which have grown a whopping 121%.
Source: (Grattan Institute and the Guardian)
Those older generations who could purchase property in the 1990’s and early 2000’s have seen their wealth skyrocket.
In contrast, the amount of savings required to place a deposit on a first home has grown at such a pace that many young Australians have been shut out of the market altogether.
Source: (Grattan Institute and the Guardian)
So what now?
As we approach the end of the decade and economies around the world begin to show signs of recovery it remains to be seen whether this trend is set to continue. If Generation Y (and those following it) can’t reverse this trend, then there is a real risk of the current younger generations of Australia living with a lower standard of living than their parents.
