Do our kids expect too much out of life? Is it our fault as Baby Boomers for bringing them up in ever increasing comforts of the lifestyle we can afford to give them? Do we all just think that “things can only get better” and in seventy years of prosperity not stopped to think that a time might approach when tomorrow’s generations might not be able to afford today’s prices? Could that day be nearing?
A new report by the Grattan Institute A Wealth of Generations, paints a stark picture about how much wealth has grown for the older generations of Australians in the last eight years and how much it has shrunk for the younger generations in the same period and frankly it has me wondering whether we have to stop and recalibrate how money works with those younger than ourselves. Surely we have to stop inflating the prices of houses and food, and see if we can help turn back the clock to simpler times when housing and lifestyle expectations were more realistic.
It is pretty scary to stop and think about the fact that twenty years ago it was perfectly normal for two or even three children to share a room in a house; for a house to only have one living room and one bathroom; and for a family to only have one income. Today, young people want a bathroom for every adult resident, a room for every person, man, woman or child, and they want it all, financially that is. But it is getting harder and harder to get it all for the younger generation.
According to the report, the housing boom plus rapid increases in government payments on pensions and services for older people risks creating a generation of young Australians with a lower standard of living than that of their parents at a similar age. It finds that most age groups are richer than they were in 2003. An average 55 to 64-year old household was $173,000 richer in real terms in 2011-12 than was a household of that age in 2003-04. The average 65 to 74-year old household was $215,000 better off over the same period. But in contrast, the wealth and incomes of younger age groups in western countries have fallen well behind those of their parents at a similar age. The average 35 to 44-year old household was only $80,000 richer. Worst affected were 25 to 34-year olds who had less wealth than people of the same age eight years before – even though they saved more than did people of that age in the past.
It seems that although it doesn’t feel like it, Governments are spending much more on pensions and services today than ever before, particularly health, for older households. In 2010, governments spent $9400 more per household over 65 than they did six years before with much of the increased spending was funded by budget deficits.
Younger generations seem to hope that gifts and inheritances will eventually redress the balance between the generations, but on present trends analysed showed that mostly inheritances only benefit those who already consider themselves wealthy.
So what can we do to prevent the rising generations from being worse off than their parents? The Australian suggests that targeting the Age Pension, reducing superannuation tax concessions, and changing taxes to being asset oriented would make a large difference.
Or is it just a storm in a teacup… Do you think that every generation has felt the pressure of exceeding the standards set by the generation before them and just needed time to develop the income, earnings and growth like every other? Or is it different this time? Do we need to step up and help our kids?