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It has been pointed out to me that in a recent Hudson article regards investing across the generations, the Gen Y category was overlooked.
It is fascinating that terms created to assist in demographic research for advertisers would become mainstream words in today’s society. It all started with the post-war baby boom to categorise the aptly named, “Baby Boomers” through to our present-day youngsters known as the Alpha Generation or “Gen A”. It seems the generation that has consistently attracted the most attention in recent years is “Gen Y”. Whether you like this labelling or not, if you delve into how the generations interact with one another when it comes to money, it can be very interesting.
There is no doubt that Generation Y, the children of the Baby Boomers, is the driver of the next economy. Generally aged in their 20s and early 30s, these people tend to be highly educated, live for today and delay marriage, children or a traditional career, until later in life. Generally speaking, they are not good money managers. Who’s to blame? The Baby Boomer generation (born between 1946 and 1964) consisted of children born into families recovering from WWII. This generation was the first to create two-income families and with this extra income these parents tended to indulge their children.
“Gen Y-ers” (born between 1980 and 1994) have been referred to as ‘KIPPERS’ (Kids in Parents’ Pockets Eroding Retirement Savings), with the latest Australian census data showing that nearly a third of young adults are still living with their parents. Extended education and housing affordability are contributing factors, but it usually comes down to the fact that it’s far cheaper to stay at home with parents covering most of the costs, such as utilities, food and other essentials.
Some of the Y Generation are happy for “Bank Boomer” or “Bank Mum and Dad” to prop up their lifestyles and supplement their income. However, this is proving to be the downfall in their becoming successful money managers. Many are heavily in debt, with research indicating that 42% of those under age 24 have personal debts of between $10,000 and $30,000 and more than a third of all registered debt agreements belonging to 25-34 year olds.
Having grown up in a largely booming economy, Gen Y is often unrealistically optimistic but it’s getting close to crunch time for this generation. Overly generous Baby Boomer parents are closer to retirement age and are becoming more focused on their own future needs. They either won’t or can’t afford to continue supporting their children’s lifestyles. These young adults need to develop budgeting and debt management skills, build their savings and turn their attention to their future, such as buying a home.
Saving to buy their first home won’t just result in them having a property and avoid having to pay rent (i.e. someone else’s mortgage), it will teach them an essential life lesson and that they shouldn’t spend everything they earn. Once this milestone is reached, they will hopefully realise that they have the power to resist spending all their hard earned, and can then focus on the next step – some form of additional growth asset (shares or perhaps an investment property).
If you’re the parent or the child and the time is looming to make some hard decisions, arrange a time to sit down with your Hudson financial planner to help you prepare for a different future that works for everyone.