A new household budget survey suggests Gen Ys are better off than they think. The Canberra University report says that Gen Ys enjoy the fastest growing living standards of any generation.
If you’re a Gen Y reading this, this may come as somewhat of a surprise. In case you’re not familiar, Gen Y refers to the generation born between 1980 and 2000.
The ‘NATSEM’ report is surprising because it goes against commonly held beliefs. The youngest generations have a tendency to think they have it the worst. It’s almost conventional wisdom at this point for Gen Ys to believe they’re doing it tougher than their parents.
But if we believe the NATSEM research, Gen Ys should stop playing the victim.
According to the report, living standards among under-35s grew 58.4% between 1988 and 2011. That compares favourably to households aged 35–49. They saw their living standards increase by 52%. Meanwhile, households aged 50–65 saw a 54.9% rise in living standards.
There’s one thing that immediately jumps out from this data. It’s been a good time to live in Australia, full stop. Living standards, regardless of your age, have only risen. From young to old, everyone is better off than they were 20 years ago.
That’s good news for all Aussie households. So what’s the issue then? Well, it depends who you ask.
If we were to ask a 25 year old, they might complain that income distribution skews heavily towards older generations. A Gen Xer, on the other hand, might label younger generations as pampered. They could just as easily argue that Gen Ys are too demanding, expecting everything on a silver platter.
Clearly there’s a degree of truth to both arguments. But if we look at why Gen Y living standards are rising, Gen Ys concerns start to look more valid.
The generational shift among households
According to the report, the rise in living standards boils down to three broader trends.
One is that the cost of living has gone down for Gen Ys.
The second is that Gen Y households now typically have two incomes.
Finally, women are having comparatively fewer children than any previous generation. These three factors all relate to each other, as we’ll see. But let’s start with the growing trend towards smaller families.
One of the biggest trends over the past generation is the increase in workforce participation among women.
Women are increasingly putting off child bearing until well into their late 20s and early 30s. Part of this has to do with the fact that women are more educated in general these days. Not only that, but their qualifications allow them to access high paying jobs.
What’s more, women also continue to work once they have children. That’s a significant generational shift compared to older generations.
Not only are women putting off having children, but they’re having fewer children overall. The fertility rate in Australia, as in most other developed nations, is below replacement level. In other words, Aussie households typically have fewer than 2.1 children on average. Compared to days gone by, the difference is stark.
In 1961, household could expect to have 3.5 children on average. Even in 1971, the fertility rate was still 2.9; well above replacement level. Over time, this figure dropped below 2, where it now sits. But its effects on households are obvious. In terms of living standards, it’s hard to overstate the importance of children in the equation.
As you may know already, children cost a lot of money to bring up. The fact that people are having fewer children suggests that living standards improvement among Gen Ys is overstated.
If we take children out of the equation, it’s only natural that households have more disposable income at hand. That’s gives the impression that they’re better off as a result. But it’s not exactly a like for like comparison with older generations.
Essentially, Gen Y has fewer expenses than older generations. It’s no wonder that their living standards are holding up well.
Assets versus income: the full picture
The NATSEM report also fails to account for household assets. In other words, property ownership is unaccounted for. I don’t know about you, but that strikes me as a glaring omission. Leaving assets out of the equation doesn’t give us the full picture of true living standards.
How can we separate incomes from assets in a country like Australia? Asset accumulation has been the Australian story for the last 15 years. That’s especially true among older generations, where ownership levels are high.
In order to really measure living standards, we can’t help but take assets into account. After all, household assets are a significant determinant of wealth today. Any household that owns property is, by default, better off than one which rents.
A recent Grattan Institute report found that 55 to 64 year old households were $173,000 better off in real terms in 2011 compared to 2003. Not surprisingly, they put this down primarily to rising house prices during this period.
The NATSEM report brings up another interesting point regarding this. It argues that younger generations have access to historically low mortgage rates. That may be true, but it’s not entirely helpful. It’s certainly beneficial in a world where housing is affordable. But in cities like Sydney and Melbourne, that isn’t the case.
That’s not to discredit the fact that many young households reside outside the big two cities though. Certainly the low cost of borrowing plays a major part in housing affordability in other parts of the nation. But the point stands. Many young households still find owning property a distant dream.
Whichever way you look at it, measuring living standards by looking solely at incomes is counter-intuitive. Not only that, but it suggests the NATSEM report overestimates Gen Y living standards.
What does that leave us with?
Well, Gen Ys are having fewer children, working longer, and own fewer assets. Other than that, things have never been better.
Contributor, Markets and Money
PS: Owning a house is beyond the means of many younger households. Rising property values have priced many of Australia’s young from the dream of owning a home. Unfortunately, housing affordability won’t improve anytime soon. Why?
Markets and Money’s property expert, Phillip J. Anderson, believes that house prices will only continue rising. With high demand, from both domestic and international investors, it’s not hard to see why. In fact, Phil says that property prices are set to continue growing for another decade.
Phil’s 20 years of experience as a property analyst and advisor has given him a keen sense for where the property market is, and where it’s going. He correctly predicted the 2008 housing market crash. He also went against the trend in 2009, saying that house prices would go on to boom this decade.
He was right on both accounts.
In his latest free report ‘Why Australian Property is on the Verge of a Decade Long Boom’, Phil guides you through this coming decade. He’ll show you the right time to buy property at its cheapest, and how you can use this to time your investments. To find out how to download his free report, click here.