Much has been written about the finances and spending habits of Baby Boomers, the 5.5 million Australians born between 1946 and 1965.
This is the generation that typically entered an accessible property market and enjoyed years of strong property price increases while paying their mortgages down. Boomers have also ridden the highs and lows of the share market, as the first generation to have compulsory superannuation.
It’s made Baby Boomers far richer than previous generations, and there’s been plenty of commentary around the so-called SKI movement, as 60-pluses who’re finally free from the world of work ‘spend the kids’ inheritance’ on cruises and luxury goods.
But are those stereotypes of wealthy Baby Boomers spending big really fair? Westpac surveyed 2,000 Aussies on home ownership, including inheritance issues. Here’s what the research uncovered.
Baby Boomers as a group ARE financially secure
Whether it was fortuitous economic timing, a hard-working “head down, bum up” work ethic, an inherited mindset about the importance of being financially prudent, or a combination of all of these factors, this is a financially healthy generation. According to Westpac, 95 per cent of Baby Boomers are home owners, with 61 per cent owning their properties outright and 34 per cent currently paying off a mortgage.
Meanwhile, the Association of Superannuation Funds of Australia calculated that the average super balances at the time of retirement (assumed to be age 60-64) in 2015-16 were $270,710 for men and $157,050 for women.
And Baby Boomers are set to grow even more wealthy, as they begin to access to a substantial pool of inter-generational equity with the death of their Silent Generation parents.
“Inter-generational equity is defined as ‘the average amount of time a generation has access to potential wealth via inheritance from the immediately preceding generation’ and Baby Boomers are expected to be the demographic that will have greatest access to it,” Andy Wright, Westpac’s home ownership spokesperson, says.
“This could lead to the mounting social expectation for Baby Boomers to share this wealth with their children and even grandchildren, thereby pressurising them into abstaining from enjoying life post-retirement. Yet at the same time, it can be viewed as an opportunity for them to help their children achieve the great Australian dream of home ownership.”
Baby Boomers spend their own inheritances sensibly
Of the 40 per cent of survey participants who had already received an inheritance, the majority used it to pay down debt or build savings, shoring up their own financial position. Nearly a quarter of Baby Boomers (21 per cent) used it to pay off or pay down their mortgages, while 28 per cent put it into savings or topped up their superannuation.
Five per cent of respondents used inherited funds to buy a car, and four per cent went on a holiday. Just two per cent of respondents passed on a share of their inheritance to their adult children to spend any way they chose, while a tiny one per cent gave it to their kids to buy a home.
Baby Boomers are NOT downsizing the family home
Westpac’s research also found that the majority of Baby Boomers surveyed are keeping a firm hold on their greatest asset, their family home, for now. Some are holding onto the family home because they expect to rely on it to fund their retirement.
Just over a quarter of respondents (26 per cent) expect to have to draw down in the equity in their home to fund their retirement, while nearly two thirds (58 per cent) said they would rely on the sale of the family home to fund any move into retirement living or aged care in the future.
When questioned about their plans for downsizing, 44 per cent of Baby Boomers had never considered downsizing. About half of this group said they were simply not ready to downsize, while others anticipated needing to keep the space to house their adult children. Sixteen per cent of those surveyed still had adult children living with them.
Only 33 per cent of those surveyed had considered downsizing, and were expecting to do so soon.
In an attempt to tackle the national housing affordability crisis, the government recently announced measures to encourage over-65s to downsize their family homes. Introduced in budget in 2016, the rules were changed to allow over-65s to each divert up to $300,000 from their home sale proceeds into their superannuation, from July 2018.
According to Wright, this measure could provide Boomers with the opportunity to move into a more practical home, while freeing up larger homes for younger families, but noted there are other financial implications.
“Downsizing has a number of benefits. A smaller property can reduce expenditures such as mortgage repayments and running costs and bills, and with adult children getting married and moving out, family homes can begin to feel empty,” Wright says. “However, as shown by our research, the cost of stamp duty on a new home and apprehension about selling can dissuade Baby Boomers from considering downsizing as an option.”
Baby Boomers ARE helping their kids on to the property market
Westpac’s research shows that some Boomers had already helped their children get into the property market. Around one in five (19 per cent) of those surveyed had already helped their kids with money, either gifting or lending them money to get into their home.
“Furthermore, when asked what they would be prepared to do in the future, 76 per cent said they would be willing to gift or loan money to help their kids into their first home,” Wright says. “A quarter of those surveyed said they are open to the idea of going guarantor on a loan.”
The Westpac research did find that although there was a lot of empathy felt by Baby Boomers for younger generations that are struggling to get on to the housing ladder, there were some “generational strains around what people believe young people are willing to do to make their dream come true”.
The results of the survey reflect the deeply embedded attachment of home ownership in Australia, as well as the continuing prudent behaviours of Baby Boomers, who need to ensure they do not outlive their savings.