Will
today's young people end up better off than their parents? That used to be a
stupid question. Of course they will. But these days, it's much less certain.
We've
come to expect that each generation will be better off than its parents, with
more income, better housing and better healthcare.
But many
young adults have begun to doubt it. According to one opinion poll, only 22 per
cent of respondents under 30 considered they would have a better life than their
parents.
And now a
report by the Grattan Institute think tank, The Wealth of Generations,
has found evidence to support the fear that today's generation of young
Australians may have lower standards of living than their parents at a similar
age.
It's a
question of what's likely to happen to their incomes and what's happening to
their wealth.
Our
wealth is our assets (property, superannuation and other financial investments,
and money in the bank) less our liabilities (mainly debts).
Wealth is like
congealed income. We can usually turn it back into money should we need to. Some
of it produces income (rental properties, financial investments) and some
reduces our need for income, such as when we live in our own homes rather than
renting.
We add to
our wealth when we save some of our annual income. Most of us save more than we
think we do, by paying off a mortgage over 20 or 30 years, or by having our
employer fulfil the government's requirement to put 9.5 per cent of our wage
into super.
We also
add to our wealth when the market value of the assets we own rises –
"capital gain". And, of course, when we inherit the wealth of our
relatives or receive a gift of money from them.
The
wealth of Australian households has grown a lot over the years, even after
allowing for inflation, as all the figures I'll quote do. But the report, by
John Daley and Danielle Wood, finds that over the past decade, older households
captured most of the growth in the nation's wealth.
Despite
the global financial crisis, households aged between 65 and 74 in 2011-12 were,
on average, $215,000 better off than households of that age range were eight
years earlier. Those aged 55 to 64 were $173,000 richer, on average.
But the
average household in the 35 to 44 age group was only $80,000 richer. And get
this: those aged 25 to 34 actually had less wealth than people of the same age
8 years earlier.
Why?
Various developments have conspired to bring this disparity about. Probably the
biggest is what's happened to house prices and home ownership.
Rates of
home ownership have fallen over the past two decades for all but the oldest
households, the report finds. Going further back to 1981, more than 60 per cent
of 25 to 34-year-olds were home owners. Thirty years later only 48 per cent of
people in that age group were owners.
An
increasing proportion of those born after 1970 will never get on the property
ladder, according to the authors. If increasing education debts aren't already
discouraging younger households from taking out mortgages, it sounds like it
won't be long before they will be.
This
means a higher proportion of the younger generation missed out on rising
housing wealth as house prices boomed. Between 1995 and 2012, house prices
increased by an average of 4.3 per cent a year faster than inflation. This was
much faster than the rise in full-time wages.
The boom
was caused by the greater availability of home loans, the return to low
inflation in the mid-1990s and by our failure to build enough new dwellings to
keep up with population growth.
The later
you were to get in on it, the less the boom's capacity to increase your wealth,
particularly because you had to borrow so much to join. But the worst of it for
young people is that, though house prices are likely to stay high (making it
hard to afford the entry fee), they can't possibly keep rising at the same rate
(meaning the prize for getting in won't be as big as it used to be).
There's
more to the problem than housing, however. Incomes also grew fastest for older
people, allowing them to add more to their wealth through saving. In 2004,
households aged 55 to 64 were net spenders; by 2010, with average annual
incomes $4600 higher, their net annual saving was $2700.
Although
households aged 25 to 34 kept their spending controlled, their average incomes
increased by $3100 and their saving by $1500.
A big
part of the reason for this is that, over the years, government spending and
taxation policies have become more favourable to the elderly than they were.
The age pension's been made more generous while income from super is now
tax-free.
Who has
gained most from the big budget deficits we've been running since 2009? The
old. Who will eventually have to pick up most of the tab? The young.
All this
wouldn't be such a worry if we could be confident that incomes will keep
growing as strongly in the future as they have been for 70 years. They may.
But it
isn't hard to think of reasons why they may not – including the thing none of
us is allowed even to think about: climate change.
