White Paper. rest.com.au. WealthStyle: Gen Y s Spending, Saving and Debt Choices

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1 White Paper WealthStyle: Gen Y s Spending, Saving and Debt Choices Generation Y experiences and challenges Income, spending, saving and debt... the current picture WealthStyle implications and future directions rest.com.au

2 Foreword REST CEO Damian Hill There s much more to Australia s Generation Y than meets the eye. Much of the commentary and analysis of this generation characterises them as being self-centred, living only in the now 1,2, and irresponsible when it comes to managing their money. 3 But our research painted a very different, and considerably more positive, picture. The world young Australians live in today is fast-paced, constantly changing and very different to their Generation X and Baby Boomer predecessors when they were in their early 20s and 30s. A large proportion of REST Industry Super s members are from Generation Y, and we wanted to dig deep to examine these differences, understand their financial habits and how these may affect them in the future. To do this, we commissioned the WealthStyle: Gen Y s Spending, Saving and Debt Choices White Paper. Specifically, we looked at this group s WealthStyle, what type of debt they are accruing and the attitudes, beliefs and behaviours that contribute to building their long-term future financial health and security. From our research, we learned that Generation Y is generally careful with its spending, with many saving every month. They are, however, accruing more debt at an earlier age than the generations before them, mostly through the study costs they incur. And while they are saving, it is generally for short-term purchases and experiences, not with an eye to the longer-term. This means many members of this generation are on the back foot when it comes to long term financial security before they have even begun their careers. Insights such as these are vital to help the financial services industry, including superannuation funds, understand the key financial pressures that affect Generation Y. They will help shape our education programs and ensure we speak the same language when it comes to their financial futures. For example, 25% of the survey respondents weren t aware of initiatives like salary sacrifice or the Government co-contribution scheme; tools established to help people just like them. The upshot of this is that Generation Y would be greatly assisted by an improvement in financial literacy. The community has a responsibility to help young people make good decisions as they gain their financial independence. This includes decisions about short-term and long-term goals. This responsibility ultimately falls on schools, parents, governments and the financial services sector. Information needs to be provided in a way that is accessible and interesting to young people and should cover a range of areas from short-term goals such as saving for travel through to how to repay debt as quickly as possible, plan a budget and select a superannuation fund. It is my hope that some of the issues raised and examined in this White Paper will highlight a number of key lessons for Generation Y and their WealthStyle, as well as guiding financial advice, education and services for them into the future. Damian Hill CEO, REST Industry Super 1 What s right with Gen Y, Hugh Mackay, Sydney Morning Herald, 21 August 2010, p.3 2 Gen Y resent media stereotypes, Neil Shoebridge, Australian Financial Review, 17 October 2011, p.41 3 Y takes most of the credit, Peter Rolfe, Sunday Herald Sun, 17 July 2011, p.35 Contents Executive summary 3 Generation Y experiences and challenges 4 Income, spending, saving and debt... the current picture 6 WealthStyle implications and future directions 9 Appendix 11 References 11 2

3 Executive summary Most discussions about financial security and retirement preparedness understandably focus on the Baby Boomer generation as they enter the post-work phase of their lives. However, the long-term nature of financial planning means it is also important to look at those just starting out in the workforce or in the early stages of building their career, Generation Y. REST Industry Super has commissioned this White Paper, WealthStyle: Gen Y s Spending, Savings and Debt Choices, to turn the spotlight on the financial habits of those in their 20s and early 30s and to shape education and support resources to help them in their later years. As a leading Australian superannuation fund, and one with a high number of Generation Y members, REST is seeking to raise awareness about the current financial position of this generation and the potential implications this has on their future finances. Specifically, looking at the current saving habits, debts and income levels, and what these mean for Generation Y s retirement WealthStyle. A key component of the White Paper is a national online survey of 752 people aged 18 to 35 commissioned by REST which was undertaken between October 26 and 28, For accuracy, the survey used a proportionally representative spread of Australians aged based on 2006 ABS geographic, gender and age statistics. It canvassed a wide range of topics such as study commitments, living arrangements, spending habits, saving patterns and debts. Several key financial lessons 5 emerged from the survey about the current and potential future, financial health, or WealthStyle, of Generation Y. WealthStyle: Gen Y s Spending, Savings and Debt Choices is divided into three sections: 1. Contrasting living experiences The first section uses the REST survey 9 and past Census reports to contrast the living experiences of Generation Y with those of Baby Boomers and Generation X when they were in their 20s and 30s. These differences have implications for both the current financial position of Generation Y and their achievement of future financial milestones such as home ownership, retirement and security. 2. Income, spending, saving and debt... the current picture The second section looks at current spending, saving and debt patterns of Generation Y. Where are they spending their money? Are they saving? If so, what are these savings for? How much debt and what type of debt are they currently carrying? What do all these trends mean for their later years? 3. WealthStyle implications and future directions The final section of the paper puts forward potential implications of the current financial habits of Generation Y on their future security. 1. Generation Y is developing good savings habits, but needs to increase its focus on long term savings 2. Generation Y needs to more actively engage in decisions around their superannuation 3. Generation Y would be assisted by an improvement in financial literacy 4. Generation Y is not as frivolous about spending as popular perceptions often suggest 5. Generation Y does not widely use short-term personal debt, including credit cards, a finding which mirrors a number of earlier studies 6,7,8 6. Generation Y is starting to accumulate long-term assets, like housing, later than previous generations 7. Generation Y is not sufficiently protected from unexpected events, such as losing their income, suffering a disability or death 8. Generation Y is accruing debt, mainly via study-related costs 4 A summary of the main findings can be found in the Appendix. This survey was done of the general population in this age group, not REST members. 5 Further details behind each of these points can be found on pages 18 and Gen Y not such a bad lot: survey, Craig Hoggett, The Mercury, 11 July 2011, p.14 7 Gen Y Has the Bubble Burst? Survey Results 8 Australia divided into consumer tribes : KPMG, Michelle Hammond, business-planning/australia-divided-into-consumer-tribes-kpmg.html 9 REST survey (Oct 2011) REST Wealthstyle White Paper 3

4 Generation Y experiences and challenges Categorising generations is not a clear-cut exercise and there is no official definition that states when one generation ends and another starts. For the purposes of this White Paper, we have defined the generations as: Baby Boomers born 1943 to 1960 (currently aged 51 to 68) Generation X born 1961 to 1975 (currently aged 35 to 50) Generation Y born 1976 to 1993 (currently aged 18 to 35) An age bracket of 18 to 35 is a wide range and it is reasonable to expect differences in behaviours and attitudes within this generation. In order to better understand the differences of the age groups within Generation Y, the White Paper also splits Generation Y into four sub-groups: 18 to to to to 35 According to the Australian Bureau of Statistics (ABS), 10 there are currently 5.7 million Australians aged between 18 and 35 split 51% men and 49% women. The experience of being in their 20s and early 30s is very different for Generation Y, compared to earlier generations. Generation Y has different spending, debt levels and asset accumulation patterns compared to previous generations when they were the same age. This has implications for the financial situation of Generation Y as they get older, and raises questions about their preparedness for potential financial milestones such as home ownership, income security and retirement. There are three key lifestyle areas explored in this report to illustrate how the world is being experienced by young people today in comparison to past generations studying, working and living arrangements. Studying A greater proportion of 18 to 35 year olds are staying in education longer, including at both TAFE and university, than previous generations. This increased focus on study can delay entry into full-time work and means Generation Y is starting to save and accumulate assets, such as a first home or other investments, later than earlier generations did. Of the 18 to 35 year olds that took part in the REST survey, 43% are studying, with 24% doing this full-time, and 19% doing part-time study. 11 The two younger age groups are more heavily engaged in study. For 18 to 20 year olds, over three-quarters are studying, and for the 21 to 25 age group, over half (56%) are still studying. 12 Fig. 1 Studying patterns of 18 to 35 year olds Overall Full-time Part-time Total studying These figures are in contrast to that of Baby Boomers and Generation X. For Baby Boomers, over two-thirds (64%) of people aged year olds in 1976 had left school aged 16 or younger. And 57% of year olds left school at 16 or younger. 13 For Generation X, just over 40% of those aged in had left school at 16 or younger. In terms of attending University, 51% of year olds were undertaking postschool qualifications in Working This strong focus on study into their 20s is also reflected in the employment status of the typical Generation Y. As a generation, they are older before moving into full-time work than their predecessors. Nevertheless, once Generation Y has finished studying they are more likely to be able to find full-time work than Generation X was when they finished. This is most likely due to the more challenging employment environment in the early 1990s, when the national unemployment rate averaged 9.6% 16 in 1991, compared to 5.2% 17 in October This provides a better starting base, from an income point of view at least, than people currently in their late 30s and 40s. Only 15% of 18 to 20 year olds that responded to the REST survey are working full-time but this rose to 45% for 21 to 24 year olds, 70% for 26 to 30 year olds and to 76% of those aged Part-time and casual work is more common for those in the younger age groups. For 18 to 20 year olds, over 30% are working part-time or as a casual, but this falls to 16% for the 31 to 35 age group 19. Overall, almost a third (29%) of respondents said they are studying and working. Of those respondents who are studying, 68% are combining study and work, made up of 43% who are combining full-time work with study commitments and 25% who are combining part-time or casual work with study. The remaining 32% of respondents studying are not working at all ABS (2011) Australian Demographic Statistics March 2011 quarter, Table REST survey (Oct 2011). 12 Ibid. 13 ABS (1976) Census of Population and Housing, Table ABS (1991) Census of Population and Housing, Table 4.2 and Ibid. 16 ABS (2011) Labour Force, , October 2011, Table Ibid. 18 REST survey (Oct 2011). 19 Ibid 20 Ibid 4

5 Fig. 2 Working patterns of 18 to 35 year olds Age Full-time Part-time Casual Unemployed Student (non-working) Not currenly in paid work or looking for paid work For Baby Boomers, part-time work was so unusual in 1976 that it was not even included as a distinct category of work in that year s census. For year olds in 1976, almost three-quarters were employed (61% of women) and for year olds, 70% were working. Of this number, over 90% of men were working, but female employment rates had fallen to 50% of all women, most likely reflecting the fact that they were getting married and having families. 21 This pattern had started to shift by the time Generation X were leaving school in the For year olds the rate of employment had dipped to 67% (15% part-time and only 48% full-time). This is most likely due to higher rates of people continuing to study after school, compared to Baby Boomers. For those that were in 1991, their employment patterns reverted to being similar to those of Baby Boomers when they were of the same age with 69% employed (14% of part-time, 52% full-time). 22 Interestingly, this rate of full-time work is lower than the 70% of current 26 to 30 year olds that are working full-time, according to the REST survey. 23 As discussed above, this most likely reflects the more challenging employment environment in 1991, when the national unemployment rate averaged 9.6% 24 that year, compared to 5.2% 25 in October Living Generation Y is more likely to be living at home with their parents than any other previous generation at the same age. 26 This reliance on living in the parental home is likely to be due to a number of factors, including the reduced affordability of owning a home. Almost a third (32%) of respondents said they were living at home with their parents, mainly those concentrated in the 18 to 20 and 21 to 25 age groups. Almost a quarter (24%) of 26 to 30 year old respondents said they were still living in the family home. 27 Research conducted by REST 28 earlier this year highlighted the decline in homeownership amongst younger people as the price of new homes, especially in capital cities, moves out of reach for many people. But affordability doesn t seem to be the only reason Generation Y is staying in the family home. The latest REST survey found that almost a quarter (24%) of those working full-time are still living in the family home. This is despite the median income for full-time workers in the survey being $60,000 to $70,000. In other words, this group could afford to be renting or paying a mortgage, yet they are remaining in the family home. This suggests there must be other factors at play beyond affordability issues (for example, staying at home to save for a deposit), although the REST survey did not ask what these other factors may be. 29 There were also more survey respondents who said they were renting (35%) than those who said they were paying a mortgage. 30 The smallest group of people were those with a mortgage on a home they were living in at only 30%. This was mainly concentrated in the older age groups above 26 years old (39% of 26 to 30 year old respondents and 55% of 31 to 35 year olds). 31 Fig. 3 Living arrangement patterns of 18 to 35 year olds Overall Live with parent(s)/family Live alone Live in share house or flat (e.g. with friends) Live with partner Live with partner and children Live alone with children This is in stark contrast to the Baby Boomer experience, where the typical Baby Boomer was most likely already heading up a household during their 20s. Indeed 21% of all households in 1976 were headed by someone under 30 years of age. 32 Generation X also embraced home ownership earlier than Generation Y. The Housing Survey shows 45% of those aged 15 to 35 had purchased a home 33 compared to 32% for the 18 to 35 year olds that took part in the REST survey who said they were paying off a mortgage. 34 Summary A greater proportion of Generation Y is continuing to study at TAFE or university than previous generations. This means they are entering full-time work later than Baby Boomers although once they have finished their studies they are accessing full-time work in greater numbers than Generation X did in their mid to late 20s. A greater proportion of Generation Y is continuing to live with their parents into their 20s. They are also delaying homeownership either by choice or necessity when compared to Baby Boomers and Generation X. This more widespread delay in starting to acquire major assets, like a home, is likely to have an impact on the future financial security of this generation as a whole including their retirement plans. 21. ABS (1976) Census of Population and Housing, Table ABS (1991) Census of Population and Housing. 23 REST survey (Oct 2011). 24 ABS (2011) Labour Force, , October 2011, Table Ibid. 26 REST survey (Oct 2011). 27 Ibid. 28 REST (2011) Home Ownership and Superannuation White Paper. 29 REST survey (Oct 2011). 30 Ibid. 31 Ibid. 32 ABS (1976) Census of Population and Housing, Table ABS (1997) Housing Occupancy and Costs, , Table REST survey (Oct 2011) REST Wealthstyle White Paper 5

6 Income, spending, saving and debt... the current picture As part of this project, REST wanted to find out more about Generation Y to better understand their current and likely future financial habits. Are they really as frivolous with their spending as popular portraits suggest? 35 Do they save money? If so, what are they saving for? Are they thinking about their retirement and making sure they have enough money to live on when they have finished work? To gather this information, REST commissioned an online survey from October 26 to 28, 2011 and gathered information from 752 people aged 18 to 35 across Australia. The survey asked a range of questions about the current income, spending, saving and debt positions of participants. Fig. 4 Income patterns of 18 to 35 year olds Overall Up to $20,000 $20,001-$30,000 $30,001-$40,000 $40,001-$50,000 $50,001-$60,000 $60,001-$70,000 $70,001-$80,000 $80,001-$90,000 $90,001-$100,000 $90,001-$100,000 The median income (before tax) of all respondents to the survey was $40,000 to $50,000 per year. 36 As would be expected given the age of people in the survey, this is below the current full-time average weekly ordinary time earnings across the economy of $68, per year. The spread of income changed across ages. For 18 to 20 year olds the median earnings were less than $20,000, for 21 to 25 year olds, $30,001 to $40,000, for 25 to 30 it rose to $50,001 to $60,000 and for 31 to 35 it had risen to $60,001 to $70, This income is largely earned via a wage or salary (79%), with government assistance payments a distant second most common method (16%). Parents appear to be happier to support 18 to 20 year olds, with 21% of this age group saying a parental allowance or assistance was their main source of income. However, this had fallen off to just 7% for the 21 to 25 age group. 39 Spending The REST survey asked Generation Y s about some of the major spending categories and how much they spend each month on these areas to gain a better insight into current spending habits. As discussed earlier, the popular media picture is that Generation Y spends most of its money on entertainment and recreation. However, the REST survey found that most spending is done on necessities. Overall, the median monthly spend on recreation and entertainment was $101 to $150. This is less than groceries and transport, the same as utilities and slightly more than telecommunications. Indeed, 47% of 18 to 20 year olds said they spent less than $100 per month on entertainment and recreation costs which equates to less than $25 per week. Across all respondents, less than a quarter (24%) said they spent more than $250 per month Good habits will pay off, Anneli Knight, Sydney Morning Herald, 31 March 2010, p REST survey (Oct 2011). 37 ABS (2011) Average Weekly Earnings, , Table REST survey (Oct 2011). 39 Ibid. 40 Ibid. 6

7 Debt Generation Y may be delaying the mortgage until they are older, compared to other generations, but that doesn t mean they have no debt. Credit cards and store cards In terms of short term credit card and store card debt, over a third (36%) said they did not have a credit card or store card. This was particularly high for those aged 18 to 20 (74%) and fell with each age group with only 19% of 31 to 35 year olds not having a credit card or store card. 41 For 18 to 20 year olds that had a credit card, half paid their balance off every month. This figure fell to 35% for 21 to 25 year olds, but then rose back to 44% for 26 to 30 year olds and 46% for 31 to 35 year olds. 42 The median debt for survey respondents that had a credit card or store card debt (that is, they did not pay off their balance every month) was between $1,001 and $2,000, with 35% saying they had debts in excess of $3,000 and 8% with outstanding card debts above $10, Fig. 5 Credit card and Store card use and outstanding balances Overall No housing costs up to $500 $501 to $1000 $1001 to $1500 $1501 to $2000 $2000 to $2500 $2501 to $3000 Over $3000 Study-related debt As previously highlighted, one of the differences between Generation Y and the experience of older generations is that more young people are staying in study after they have finished school, such as at TAFE or university. In addition, the small number of Baby Boomers that did undertake tertiary study largely had all their tuition costs paid for by the Commonwealth Government, unlike Generation X and Generation Y. 44 For the group of respondents to this survey, 40% had an outstanding study-related debt. 45 For those who had a debt, the median level for all age groups was between $10,001 and $20, to 20 year olds with a debt, have a median debt level of $5,001 to $10,000 as they are in the early years of their studies. 21 to 25 year olds and 26 to 30 year olds are nearing the end of their studies and have a median debt of $10,001 to $20,000. Most 31 to 35 year olds (80%) do not have a study related debt, most likely reflecting that any study-related debt they did incur has been repaid through the tax system. Fig. 6 Current study debt position of 18 to 35 year olds 8% 16% 8% 3% 7% 60% No study debt 60% Under $1,000 3% $1,001 to $5,000 8% $5001 to $10,000 8% $10,001 to $30,000 16% Over $30,000 7% Personal loans Personal loans were less common than credit card debt, despite this form of finance usually having lower interest rates. Just over a quarter (26%) of respondents had a personal loan, most commonly in the 26 to 30 year old age bracket. For those that had a personal loan, the median outstanding debt was between $5,001 and $10, Housing debt Just over a third (37%) of all respondents said they were paying off a mortgage, largely amongst older age groups. Almost two-thirds (60%) of year olds and 45% of year olds had a home loan. For those respondents who have a home loan, the median size was $200,000 to $300, Ibid. 42 Ibid. 43 Ibid 44 In 1989 a flat university fee (HECS) was introduced to partially cover tuition costs and so was paid by most university students of Generation X. This HECS debt was re-paid via the tax system when a person s income reached a minimum level. In 1996 further changes were made that introduced a 3-tier system of fees depending on the course being studied. This lifted fee levels for most students, especially those studying medicine, engineering and sciences. Universities were also allowed to offer full-fee paying places for students who did not meet the qualifying criteria for a government-subsidies place. In 2005 further changes were made that allowed universities to charge up to 25% more than the previous government regulated fees. Most of Generation Y entered study post-1996 and so has faced higher fees than Generation X. Consequently, Generation Y, as a group, is entering their 20s with higher studyrelated debts than previous generations. Source: Higher Education Funding Act 1988 and 45 REST survey (Oct 2011) 46 Ibid. 47 Ibid. REST Wealthstyle White Paper 7

8 Income, spending, saving and debt... (continued) Fig. 7 Home loan debt for 18 to 35 year olds 10% 10% 9% 4% 3% 63% Saving Regular short-term savings No home loan 63% Under $200,000 10% $200, ,000 10% $300, ,000 9% $400, ,000 4% Over $30,000 3% Over three-quarters (79%) of survey respondents said they were saving. The highest proportion of savers was the 31 to 35 age bracket (85%) and weakest amongst the 18 to 20 age bracket (71%). 48 Of those who did save, the median monthly saving was $301 to $400 per month. The savers of the largest amount of money each month were those aged 26 to 30 ($401 to $500) and the lowest savers were the two youngest brackets ($201 to $300). 49 Across all respondents, the most popular reason for saving was for travel (51%). Those aged 26 to 30 were the most likely to be saving for a property deposit (44%) and those aged 18 to 20 were the most likely to be saving for a vehicle (29%). Around 1 in 5 respondents said they were not saving for anything in particular. 50 Fig. 8 Saving goals for 18 to 35 year olds Number of responses Travel/holiday Property deposit Car/motor bike Shares/investments Study costs Other I am not saving for anything specific Future plans The REST survey also asked respondents about their retirement planning and current insurance habits to protect them against future events to gain an insight into their current preparedness for the future and the unexpected. Superannuation Like all working Australians, those employed between 18 and 35 are part of the compulsory superannuation system, where 9% of a person s salary is placed in a superannuation account to contribute towards retirement savings. According to the most recent ABS 51 publication on superannuation, in 2007 most 15 to 24 year olds have a superannuation balance between $1 and $9,999 (75%), although 17% of people in this age group did not know their balance. A third of 25 to 34 year olds also had a balance up to $9,999 and 28% had a balance between $10,000 and $24,999. Most (67%) of the respondents to the REST survey said their current superannuation fund was one that had been selected by an employer (either past or current). Only 14% had chosen their superannuation fund themselves. This only increased slightly (17%) for 31 to 35 year olds. A small number (12%) of all respondents said they did not know if they either chose their fund or had their fund chosen by their employer 52. Despite this lack of active choice around superannuation funds, a third (32%) of respondents reported they have made additional contributions to their superannuation fund beyond the compulsory contributions. This was highest in those aged 31 to 35 years old (45%). 53 Despite the lower-than-national-average wage rates of 18 to 35 year olds, only 12% 54 have taken advantage of the Commonwealth Government s co-contribution scheme. 55 Insurance Only 7% of respondents had not purchased some type of insurance cover, like car or income. 56 The most common form of insurance was car insurance (70%), followed by health insurance (51%) and home insurance (40%). The least purchased insurance was income protection (7%) and life insurance (8%), although these rates did rise for 31 to 35 year olds, to 11% and 14% respectively. This may reflect the higher number of people with a mortgage in this age group (60% of 31 to 35 year olds). 57 This highlights the importance of having Death cover or Income Protection as part of default superannuation funds. 48 Ibid. 49 Ibid. 50 Ibid. 51 ABS (2009) Employment arrangements, retirement and superannuation April 2007 to July REST survey (Oct 2011). 53 Ibid 54 Ibid. 55 This is a scheme targeted at low income earners (income below $61,920) that is run by the Federal Government. Subject to meeting the eligibility criteria, for every dollar of personal after-tax contribution made by a low income earner to their superannuation fund, the Federal Government puts in a dollar as well, up to a tiered annual limit. 56 REST survey (Oct 2011). 57 Ibid. 8

9 WealthStyle implications and future directions The findings of the REST survey highlight a number of key financial lessons. Generation Y is developing good savings habits, but needs to increase its focus on long terms savings. According to the REST survey, most Generation Ys do save regularly. 58 This is a positive habit to develop, especially when young. However, these savings tend to be focused on short-term goals, especially travel. Young people would benefit from an additional focus on longer term goals, including building their retirement savings. In addition, 1 in 5 savers do not have savings goals and would benefit from advice on where to focus these savings to achieve various short, medium and longer term goals. Generation Y needs to more actively engage in decisions around their superannuation. Retirement seems a long way off for 18 to 35 year olds and it is challenging to encourage young people to take an interest in superannuation. Two-thirds of respondents to the REST survey said they allowed their current (or a past employer) to select their superannuation fund for them. 59 This suggests many young people are adopting the default decision and leaving it to someone else, rather than actively thinking about where they would like to invest one of their largest assets. Awareness of, and access of, government schemes to lift superannuation savings, such as the Federal Government s Co-contribution Scheme, is also low 60 amongst survey respondents and Generation Y would benefit from additional information about accessing this scheme. 61 Until such time that young people do feel that they are fully empowered to make those decisions, and become active in those decisions it is important that strong default funds continue to be selected in a way that protects member s interests. Generation Y would be assisted by an improvement in financial literacy. The community has a responsibility to help young people make good decisions as they gain their financial independence. This includes decisions about short-term and long-term goals. This responsibility ultimately falls on schools, parents, governments and the financial services sector. Information needs to be provided in a way that is accessible and interesting to young people. Information could cover a range of areas from short-term goals such as saving for travel through to how to repay debt as quickly as possible, plan a budget and select a superannuation fund. Generation Y is not as frivolous about spending as popular perceptions often suggest. 62 Most of Generation Y s non-housing spending is directed at essential items, such as groceries, utilities and transport. Less than a quarter of spending done by Generation Y is directed towards discretionary spending such as recreation/entertainment and clothing. 63 Greater recognition of the positive financial habits of Generation Y could help spread the word on the benefits of these practices and help further encourage the take-up of these positive behaviours. 58 Ibid. 59 Ibid. 60 Ibid. 61 This is a scheme targeted at low income earners (income below $61,920) that is run by the Federal Government. Subject to meeting the eligibility criteria, for every dollar of personal after-tax contribution made by a low income earner to their superannuation fund, the Federal Government puts in a dollar as well, up to a tiered annual limit. 62 Good habits will pay off, Anneli Knight, Sydney Morning Herald, 31 March 2010, p REST survey (Oct 2011). REST Wealthstyle White Paper 9

10 WealthStyle implications and future directions (continued) Generation Y does not widely use short-term personal debt, including credit cards. 64 Despite having easier access to short-term finance (like credit cards) than previous generations in their 20s and 30s, the REST survey 65 findings suggest the take-up is not universal. Significantly, this finding is not unique to this White Paper and is confirmed by the results of a number of other recent studies. 66,67,68 Generation Y can be split into three roughly equal groups those that do not have a credit card or store card; those that have access to this shortterm debt but pay it off each month; and those that are left paying interest on outstanding monthly balances. The latter group, who are carrying a credit card debt, could be assisted by information about how to plan budgets, limit use of short-term debt and strategies to re-pay the debt as quickly as possible. Generation Y is starting to accumulate long-term assets, like housing, later than previous generations. 69 Generation Y are buying homes, but they are doing this when they are older and in lower proportions than previous generations experienced. This is happening by either choice or necessity. In the past, the family home has been the main asset held by most households and has formed a key plank of the retirement savings plans of many retirees. The lower rate of home ownership amongst 18 to 35 year olds suggests they will need to place increased focus on other retirement savings options such as superannuation, if they are to have sufficient overall retirement savings. Generation Y is not sufficiently protected from unexpected events. Generation Y protects against unexpected events around their health, their car and their personal belongs but is not taking up insurance against loss of life or loss of income. For younger generations, especially those who do not own a home, the biggest asset they have to protect is their income, and their ability to earn future income. More advice focused on the benefits of insurance against loss of life and/or income would benefit Generation Y. Generation Y is accruing debt, mainly via study-related costs. Debt accumulated when studying means it s a juggling act for current 18 to 35 year olds, who need to get on top of outstanding study debts in addition to making choices about where to spend, save or invest for the future. The HECS-system also means that the take-home pay of those in their late 20s and early 30s with a study debt is lower than it would otherwise be. Information about early re-payment options, which may reduce this debt, would reduce the tax bill of ex-students. A final word on intergenerational wealth issues The big unknown in any discussion about generational financial strength and durability is the issue of intergenerational wealth transfers. Baby Boomers are more prepared than previous generations when it comes to retirement planning. Most generations prior to them were largely dependent on the pension for their retirement and home ownership rates were lower for those generations that lived through the depression and the war years. This means that Baby Boomers may have the capacity to transfer some wealth to their children and grandchildren through their estates that could boost the financial security of Generation X and Generation Y later in their lives. Working against this, however, is that Baby Boomers are living longer, with more active (and thus more expensive) lifestyles than previous generations. This could mean there is less left to transfer to the next generation. How this intergenerational transfer will play out is unclear but people currently in their 20s and early 30s may be better placed ensuring they have control of their own finances rather than risk relying on a windfall that may or may not eventuate. 64 Ibid. 65 Ibid. 66 Gen Y not such a bad lot: survey, Craig Hoggett, The Mercury, 11 July 2011, p Gen Y Has the Bubble Burst? Survey Results 68 Australia divided into consumer tribes : KPMG, Michelle Hammond, 69 Ibid. 10

11 Appendix Survey Summary 70 According to the REST survey: 43% of survey respondents are undertaking postschool study, with 24% doing this full-time, and 19% doing part-time study. Of those respondents who are studying, 68% are combining study and work, made up of 43% who are combining full-time work with study commitments and 25% who are combining part-time or casual work with study. The remaining 32% of respondents who are studying are not working. Only 15% of 18 to 20 year olds that responded to the REST survey are working full-time but this rose to 45% for 21 to 24 year olds, 70% for 26 to 30 year olds and to 76% of those aged Part-time and casual work is more common for those in the younger age groups. For 18 to 20 year olds, over 30% are working part-time or as a casual, but this falls to 16% for the 31 to 35 age group. 32% of respondents said they are living at home with their parents. 35% of respondents are renting. 30% of respondents are living in a home they own or on which they are paying a mortgage. The median income (before tax) of all respondents to the survey was $40,000 to $50,000 a year. This income is largely earned via a wage or salary (79%), with government assistance payments a distant second most common method (16%). Almost half (48%) of 18 to 20 year olds had no housing costs with a further 19% paying their parents board. For 31 to 35 year olds in the survey, 60% had a mortgage (either on a home they lived in or on an investment property) and a third had housing costs over $2000 a month. 10% were still living with their parents and 18% had housing costs below $500 per month. The median monthly cost of transport was $151 to $200 per month. The median monthly cost of telecommunications, such as phones, mobiles and internet, was $51 to $100. The median monthly cost of utilities was $101 to $150 The median monthly cost of groceries was $201 to $250. The median monthly spend on recreation and entertainment was $101 to $150. The median monthly cost of clothing was $51 to $100. The median monthly spend on health was $51 to $100. Over a third (36%) said they did not have a credit card or store card. 28% said they paid of their credit card or store card outstanding balance every month. The median debt for survey respondents that had a credit card or store debt (that is, did not pay off their balance every month) was between $1,001 and $2,000. Just over a quarter (26%) of respondents had a personal loan. 40% of respondents had an outstanding study-related debt. For those who had a debt, the median level for all age groups was between $10,001 and $20,000. Just over a third (37%) of all respondents said they were paying off a home loan, largely amongst older age groups. Over three-quarters (79%) of survey respondents said they were saving for something. 67% of the respondents to the REST survey said their current superannuation fund was one that had been selected by an employer (either past or current). Only 14% had chosen their superannuation fund themselves. A third (32%) of respondents reported they have made additional contributions to their superannuation fund beyond the compulsory contributions Only 12% have taken advantage of the Commonwealth Government s co-contribution scheme. The most common form of insurance was car insurance (70%), followed by health insurance (51%) and home insurance (40%). The least purchased insurance was income protection (7%) and life insurance (8%). References ABS (1976) Census of Population and Housing ABS (1991) Census of Population and Housing ABS (1997) Housing Occupancy and Costs, ABS (2009) Employment arrangements, retirement and superannuation, ABS (2011) Australian Demographic Statistics ABS (2011) Average Weekly Earnings, ABS (2011) Labour Force, REST (2011) Home Ownership and Superannuation White Paper REST Survey (Oct 2011) What s right with Gen Y, Hugh Mackay, Sydney Morning Herald, 21 August 2010, p.3 Gen Y resent media stereotypes, Neil Shoebridge, Australian Financial Review, 17 October 2011, p.41 Y takes most of the credit, Peter Rolfe, Sunday Herald Sun, 17 July 2011, p.35 Gen Y not such a bad lot: survey, Craig Hoggett, The Mercury, 11 July 2011, p.14 Gen Y Has the Bubble Burst? Survey Results psylutions.com.au/pdf/psylutions_gen_y_survey_ Results.pdf Australia divided into consumer tribes : KPMG, Michelle Hammond, business-planning/australia-divided-into-consumertribes-kpmg.html 70 REST survey (Oct 2011) REST Wealthstyle White Paper 11

12 7 SUPER OF THE YEAR FINALIST 2011 This paper contains general advice about our superannuation products and has been prepared without taking account of your objectives, financial situation or needs. So before making any decision about our products based on this advice consider whether it is appropriate for your own objectives, financial situation and needs; and consider the Product Disclosure Statement (PDS) at or call When you become a member of REST Industry Super, you join the Retail Employees Superannuation Trust, Fund ABN REST Industry Super is issued by the Trustee, Retail Employees Superannuation Pty Limited ABN , AFSL The Trustee has no relationships or associations with any other product issuer that might reasonably be expected to influence us in providing this advice.

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