Key takeaways
The economic landscape is deepening the financial divide between older and younger Australians.
However, with strategic financial planning and lessons from previous generations, younger Australians can navigate these challenges and build long-term wealth.
The dynamics between intergenerational wealth and housing affordability will continue shaping Australia’s property market.
In recent years, a cost-of-living crisis has dominated headlines, and inflation, rising interest rates, and economic uncertainty have tightened household budgets.
But not everyone has been affected equally.
While many younger Australians are facing mounting financial pressures, many older Australians are still spending freely, finally enjoying the fruits of years of diligent financial planning and a housing market that has worked in their favour.
Tale of two generations
On the one hand, there is a “perfect storm” of skyrocketing rents, rising grocery prices, and unaffordable property markets for many younger Australians.
Yet on the other hand many older Australians, who have significant equity in their homes are rightsizing, with many buying their new homes without the need for loans.
In fact, according to PEXA, in 2023-2024, more than 43% of homes were bought debt-free.
This really shows the financial muscles of older Australians who are not only mortgage-free but also benefit from an increased interest rate return on their savings.
But it is much more than just property.
CBA reports that those aged 18 to 29 have cut back spending by 2 per cent over the past year, while the 30 to 39 bracket slow down their spending by about 1 per cent.
In contrast, older cohorts are increasing spending well ahead of the inflation rate, with 60 to 69s up 3.9 per cent and over-70s spending 7.7 per cent more.
Why are older Australians spending so freely?
1. Living mortgage-free:
According to the Australian Bureau of Statistics, over 80% of Australians aged 65 years and over fully own their homes.
This obviously removes one of the biggest cost-of-living pressures, a mortgage, and frees up money to be spent at their discretion.
2. Higher savings interest rates:
After years of paltry returns, retirees and savers are finally reaping the benefits of higher interest rates.
Term deposits and cash savings accounts offer returns as high as 4-5%, providing many older Australians with a reliable income stream.
3. Foundations for frugality:
The older generations grew up with a culture of saving rather than spending on credit.
In general, they had conservative financial habits; and did not rely too heavily on debt, and this has positioned them well in today’s economy.
4. Access to superannuation:
Over the last two decades, superannuation balances have increased substantially, with the current median super balance of Australians aged 65-74 being over $400,000.
Combined with government pensions, many older Australians have a secure financial foundation.
Younger Australians are feeling squeezed
While older Australians, generally speaking, are in a state of relative financial freedom, younger generations are grappling with problems limiting their ability to build wealth:
- Soaring rents: Rent in many Australian cities has experienced double-digit growth over the last few years, far outpacing wage growth.
- Housing affordability: The jump in house prices in almost all capital cities has virtually made the dream of owning a house unattainable for much of Australia’s youth.
- Cost of debt: High interest rates have made the cost of servicing a mortgage much more expensive.
- Stagnant wages: while we have recently, “real wage growth” (after inflation) has been minimal.
The changing dynamics of the property market
The financial muscle of older Australians is driving a generational change across the property market.
Indeed, the share of debt-free purchasers is growing more than ever, according to PEXA, while the share of older Australians making up the number of property purchases continues to rise.
These buyers often outbid younger buyers who require financing, especially in highly desirable locations.
Interestingly more mature buyers are purchasing second homes or relocating to lifestyle-rich regions such as the Sunshine Coast, Gold Coast, and regional Victoria.
This migration is further driving up property prices in these areas and causing ripple effects for younger buyers trying to gain a foothold in the market.
At the same time, “the Bank of Mum and Dad” is helping more young buyers into the property market, which is again creating a disparity between those who come from families who have significant property holdings and those who don’t.
Lessons to younger generations
While the financial gap between generations does sound disheartening, there is something that the younger Australians might want to take away from their elder peers:
1. Invest early and consistently:
Older Australians have benefitted from decades of compounding returns on their investments.
Starting investing early, even with small sums, can make a difference that really counts over the long term.
2. Emphasise equity building:
Owning your home is a key wealth-building strategy.
If you can’t afford to buy a home where you want to live, consider rent investing –in other words renting where you want to live but only an investment property where you can afford one.
3. Diversify streams of income:
Look for ways to generate passive income, such as through investments in shares, ETFs, or side businesses.
4. Become financially literate:
Understanding how to budget, save, and invest will create a sound base to grow your wealth and avoid the financial challenges many younger Australians experience.
The bottom line
The current economic environment is not affecting all Australians equally, and generational wealth dynamics are shaping how Australians spend and the property market itself.
At a time when many are wondering how property values can keep increasing, there will be several factors driving prices higher in 20 2025, including:
- Wealthy buyers, including downsizers with significant equity, enter the market.
- The Bank of Mum and Dad helping their children and grandchildren into property.
- Some buyers move to cheaper locations or buy an apartment or townhouse rather than a home.
- More young people are rentvesting.
