Which generation has it worse?

Today’s 30-year-olds may be more educated than previous generations were at that age, but they are also much poorer and will struggle to get into the property market, says a new Australian Actuaries report.

So who – or what – is to blame for this inequality?

The popular response from older generations is to blame millennials’ lack of financial discipline. And in some cases, that may be true.

However, in its latest green paper, Mind the Gap – The Australian Actuaries Intergenerational Equity Index, the Actuaries Institute says the ‘gap’ is more likely to be due to government spending that is biased towards older people and asset prices rising much faster than incomes – due in no small part to record-low interest rates.

The report is based on an analysis of 24 indicators across six domains: economics, housing, health, social, education and the environment.

The heaviest weighting in the index was given to economics, with 30 per cent, followed by 20 per cent to health and disability indicators, 15 per cent to each of social and the environment and 10 per cent to each of education and housing.

It revealed that young people have much better health, education and social outcomes than previous generations of young people.

But when it comes to economic, housing and environmental outcomes, they are worse off than their parents and grandparents.

The index, says co-author Dr Hugh Miller, challenges the perception that “our children will live better lives than we do”.

“We expect continuous improvements in government services, better products, higher incomes and improved health,” he said in a New Daily report.

“But an increasing majority of parents fear that as today’s children grow up, they will be worse off financially than their parents.

“There are a broad range of economic, housing and environmental issues that appear to be worsening.”

The indicators show that increasing underemployment and a lack of public funding for younger cohorts has them at a disadvantage.

For the past decade, total government spending on the 25–34 and 45–54 age brackets has stayed at around 3.5 per cent of GDP. But spending on people aged 65 to 74 has risen from 3.7 per cent of GDP to 4.5 per cent in that same period.

Governments spend $37,750 per capita on people aged 65 to 74 but only $16,250 per capita on people aged 25 to 34.

The home ownership rate among people aged 25 to 34 has also fallen from 51 per cent in 2001 to 37 per cent in 2018.

“Some falls are visible in other generations but on nowhere near the scale seen for young people,” said Dr Miller.

The lack of home ownership is seen as a major contributor to the widening wealth gap between generations.

Home ownership rates are higher for older generations as they had more time to save a deposit.

According to the authors, it’s more difficult for younger people to save for and buy a house.

Assets prices are rising much faster than wages. And record low interest rates are boosting housing prices even further and making it difficult for younger people to accrue interest from their savings.

“The average young person faces challenges their predecessors did not: wage stagnation and rising underemployment, large government net debt and growing pressure on government budgets driven by increased government spending on pensions and healthcare for older households,” said Dr Miller.

The report also touched on climate change and how future generations will undoubtedly witness the worst effects of environmental decisions made by previous generations. Which may make the fact that people born today are expected to live 20 years longer than people born in 1920 a little harder to stomach.

While the index makes no specific recommendations, it did suggest that governments could review unemployment benefits, remove overly generous superannuation tax concessions for wealthy retirees, include a retiree’s home in the Age Pension asset test and replace stamp duty with “a land tax to remove the tax burden of ‘right-sizing’ a household’s home”.

“Younger people have been relatively disadvantaged across a range of measures in the past few years,” say the report authors.

“While older people are the most vulnerable to the worst health impacts of COVID-19, the economic impacts of the pandemic have brought many intergenerational issues into even sharper relief.

“Younger workers have been more likely to lose income and less likely to qualify for government payments, such as the JobKeeper payment.

“Significant increases in government debt will take decades of fiscal restraint to reduce as a fraction of GDP. These negative economic consequences will impact younger generations for years to come. Major slumps in incomes plus higher unemployment among younger generations could place significant pressure on intergenerational social contracts such as government pensions, which are effectively claims on the future earnings of younger generations.

“Now more than ever, it is important to understand how intergenerational equity is changing over time.”

Do you agree with the findings of this report? Are there areas you take umbrage with?

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Written by Leon Della Bosca

Publisher of YourLifeChoices – Australia's most-trusted and longest-running retirement website. A trusted voice on Australia's retirement landscape, including retirement income and planning, government entitlements, lifestyle and news and information relevant to Australians over 50. Leon has worked in publishing for more than 25 years and is also a travel writer and editor, graphic designer and photographer.

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