Australian Wealth Gap

[Guest The Pom Queen]

It’s a tale of two Australias: older Australians are getting much wealthier, and the young are being left behind. 

It’s a story only too familiar to Australians under 45 who have struggled to save enough money to access the housing market in Australian cities. They are a generation for whom the great Australian dream of home ownership has become largely elusive. 

Data from the Australian Bureau of Statistics (ABS) shows that older Australians are capturing an increasing share of the nation’s wealth, and the house-price boom is a major cause of the growing divide between the generations. 

As you can see in the following chart, households headed by 65-74-year-olds were on average A$480,000 wealthier in 2015-16 than households in the same age group 12 years ago. And that’s after taking inflation into account and despite the damage caused by the global financial crisis. Households headed by 45-54-year-olds are A$400,000 richer. 

In contrast, households headed by 35-44-year-olds are on average only A$120,000 wealthier – and for 25-34-year-olds the figure is just A$40,000. 

Property is a key factor for wealth disparity

Soaring property prices are a major factor behind the rapidly growing wealth of older Australians. According to the ABS, house prices grew by 37% on average across all the capital cities between 2003-04 and 2015-16 (and by more than 50% in Melbourne alone). The boom was not limited to the capitals; prices also grew strongly in regional areas. 

The next chart shows that for households headed by someone aged 75 or over, greater property wealth contributed about three-quarters of the increase in their total net wealth. For households headed by 65-74-year-olds and 55-64-year-olds, property contributed about half of the total increase in wealth.

But for younger Australians, again it is a different story. 

Bigger mortgages largely offset the increase in property wealth for households headed by 25-34-year-olds and 35-44-year-olds. Baby Boomers have also used the superannuation system to build their wealth. They took advantage of the generous super tax breaks on offer for people nearing retirement, such as the ability to put large, concessionally taxed sums into their super funds just before retirement. 

Average superannuation wealth over the same 12-year period increased by A$230,000 in real terms for households headed by 65-74-year-olds, and by more than A$150,000 for households headed by 55-64-year-olds. Strong share market returns have further boosted superannuation balances and other financial wealth.

Young people locked out

As property prices have boomed, more young Australians have been locked out of home ownership. 

As this last chart shows, home ownership rates among households headed by 25-34-year-olds fell between 1981 and 2016, from more than 60% to 45%. For households headed by 35-44-year-olds the fall was from 75% to around 62%. Home ownership rates are also falling for households headed by 45-54-year-olds. 

Some of these falls are also partly the result of social changes: Australians are waiting until later in life before starting work, forming long-term partnerships, and having children. But most Australians still want to own a home, so it is reasonable to conclude that higher property prices are the biggest cause of lower ownership rates. 

Two-thirds of 25-34-year-olds responding to a 2017 Australian National University survey thought owning a home was an important “part of the Australian way of life”, and more than half were “very concerned” that younger generations won’t be able to afford a house. 

The bank of mum and dad

The wealth divide between generations can easily lead to a more profound divide within generations. For many younger people, the only way that they can afford to buy a house is with help from “the bank of mum and dad”. 

As house prices have increased, more first home buyers are receiving assistance from family and friends to enter the property market. The strong growth in the wealth of today’s older generations, combined with the steady shrinking of the family size from 1960 to 2000, will lead to more and larger inheritances. 

Inheritances tend to transmit wealth to children who are already well-off, and home ownership is more likely among those who receive an inheritance, and more likely still among those who receive larger inheritances.

Australia is becoming wealthier, but much of the increase is concentrated in the hands of older generations. The trend is unmistakable: unless something changes, the young will fall further behind and inequality will get worse.

[Parley]

The young will eventually be old and will receive their large inheritances in due course.

No inheritance tax either so in the end they will be happy.

[Wa7]

4 hours ago, Parley said:

The young will eventually be old and will receive their large inheritances in due course.

No inheritance tax either so in the end they will be happy.

That's assuming there is an inheritance...............................

 

[Parley]

17 minutes ago, Wa7 said:

That's assuming there is an inheritance...............................

 

Read Pom Queen's post.

[Wa7]

27 minutes ago, Parley said:

Read Pom Queen's post.

I did.

I didn't see any of it state that everyone gets an inheritance.

Edited October 7, 2017 by Wa7

[Guest263228]

Well no what will more likely happen if property isn't allowed to correct, will be the steadily growing numbers unable to enter the housing market on one side and a further number of stressed 'mortgage slaves', attempting to , in cases keep a roof over their head as mortgage rates rise. Even the smallest rate rises will stress many.

What Australia will need is far greater protection for renters in the future as it becomes increasingly mainstream.

[Parley]

35 minutes ago, Wa7 said:

I did.

I didn't see any of it state that everyone gets an inheritance.

The article is talking about wealthy older Australians.

Now I believe 99% of Australians leave the bulk of their estates to their. children.

Do you have any evidence that suggest otherwise.

So I believe the wealthy older Australians eventually pass on the wealth to their kids.

True it is probably a lot later than wanted though as the kids could be in their 60 before the parents croak so a bit late.

[Wa7]

42 minutes ago, Parley said:

The article is talking about wealthy older Australians.

Now I believe 99% of Australians leave the bulk of their estates to their. children.

Do you have any evidence that suggest otherwise.

So I believe the wealthy older Australians eventually pass on the wealth to their kids.

True it is probably a lot later than wanted though as the kids could be in their 60 before the parents croak so a bit late.

I don't need any evidence, your the one saying all the young will become old and receive an inheritance and a large one apparently.

Do you have any evidence to confirm this?

Common sense says not everyone gets an inheritance in life, it doesn't require evidence.

Your last statement is very accurate, if fortunate enough to receive an inheritance its probably 30+ yrs too late.

Edited October 7, 2017 by Wa7

[Cerberus1]

https://www.smsfadviser.com/news/15935-bequests-a-low-priority-for-retirees-survey-shows  (03rd Oct 2017)

Leaving an inheritance for children is no longer a top priority for older Australians, according to a recent report, with regular income rated as the most important instead.

A report produced by National Seniors Australia and Challenger indicates that only 23 per cent of retirees consider leaving money for kids to be very important, and only 3 per cent intend to preserve all their savings for an inheritance.

Having a constant stream of regular income to cover essential needs is the top priority for over 50s, with 84 per cent rating this as very important.

Ensuring savings last throughout their lifetime is the second highest priority, with 77 per cent of respondents rating this as very important.

Having enough funds to pay for medical costs and aged care is the third most important factor, with 71 per cent rating this as important.

Chair of retirement income at Challenger, Jeremy Cooper, said these results debunk the myth that bequests are the top priority for retirees.

“The need for regular income to avoid running out of money, and to pay for aged care and medical costs, is far more important for older Australians,” said Mr Cooper.

National Seniors research director John McCallum said bequests are not central to planning for their retirement and senior Australians “are weighing these up against other trade-offs they must make to deal with longer lifespans”.

Report_RetirementIncome.pdf

[Toots]

I doubt our sons will inherit much from us.  We are living off the proceeds from the sale of our home in Sydney plus super and savings.  There won't be much left by the time we cark it.  Hopefully we will live for many a long year yet.

[Parley]

You are ignoring the value of expensive real estate.

The wealthy Australians that Pom queen is referring to are living in expensive housing probably $1.5M at a minimum but likely more.

This will become an inheritance eventually.

The whole premise of Pom Queens article is wealthy older Australians, hence not ones who are spending all their money just to live.

[Guest263228]

Lots of older Australians are out thee spending the kids inheritance on cruises and what not. I know some that give a fixed amount, say $50,000 perhaps more to grand kids. As for wealthy Australians, not just those that are living in over inflated assets, but wealthy due to numerous means, little has changed. Their kids will continue for the most part to go to private schools and inherit well.

The ever growing number of Australians that will never afford to own their own roof, will likely be one of the greatest changes in Australian society.