4 mini focus groups with members of the X and Y generation. However, financing their way of life is obviously a concern to many of both generations.

Transcription

1 Executive summary CPA Australia wished to explore the X and Y Generations attitudes to, and patterns of, savings/ investments and debt. Newton Wayman Chong was commissioned to undertake a research project to provide a picture of the views of this section of the community. The research project involved: 4 mini focus groups with members of the X and Y generation 450 telephone interviews, conducted nationally, with people aged years. Concerns of Generation X and Y It was significant, even before the survey participants knew what was the topic of the survey, that 55 claimed having enough money to live on/making ends meet/financial security, was a concern today for people of their age. This concern far exceeded the next most common issues, such as family and relationships (15), personal security and terrorism (13) and health (10). Generation X (58) were relatively more likely to mention the financial security issue than Generation Y (47). The latter did display above average concerns about employment/job security and education. In essence, the difference between the concerns of Generation X and Y, appear to reflect their age, and the issues they face as they move through different lifecycle stages. However, financing their way of life is obviously a concern to many of both generations. Attitudes to Savings and Debt There was a widespread, universal view that a constant income stream is a necessary precursor to feeling confident about taking on debt. Most also believe they have the responsibility for preparing for their own retirement, but also see it as a difficult task. Further most see saving as something that will happen for them in the future. While many are concerned over the debt and interest payments they face, using debt is considered an acceptable method to get now, what they want. At the same time, six in ten claim they have had bad debt experiences and are now more careful as a result. Views are mixed, especially on: the ease of saving ever being debt free use of financial planners. It is noteworthy that a third now feel over committed on the amount of their debt and interest payments, due to recent interest rate rises. The areas where difference exist between Generation Y and Generation X include: Page 1 of 6

2 Generation Y was marginally less likely than Generation X To consider using a Financial Planner due to cost To believe older people are now better off then we will be in the future To believe saving for retirement will be difficult To agree young people do not manage their finances very well Generation Y were more likely than Generation X to believe They rely on guidance from their parents on financial matters Saving is for the future Debts are OK if you maintain the minimum payments They do not feel well informed about financial options They will ever be debt free Five mindsets appear to exist amongst the X and Y Generations, reflecting different degrees of comfort with debt, and, the ability to save. They are: Financially Insecure Low Income Earners (18) The Financially Comfortable Debt User (25) Financially Conservative Debt Averse (16) Younger Financially Unsophisticated (23) The Threatened Savers (17) Generation X is more likely to be found in the first three while Generation Y is more common in the last two. Full descriptions of the mindsets are in 4.2 ATTITUDES TO SAVINGS. Reactions to a Personal Income Tax Reduction Faced with what to do with a $3000 personal income tax cut, six in ten (59) would at least use part of it to pay off debt and in fact, four in ten (38), would use it only to pay off debt. Few would only spend it (11) but a fifth would save it all (22). People more likely to only pay off debt were the Generation X age group, young couples, in managerial positions and those currently paying off a mortgage. Page 2 of 6

3 Usage and Attitudes to Obtaining Financial Advice Most people claimed to have previously sought advice on how to plan their finances. Only a fifth (19) claimed they had never sought advice. The sources of advice were diverse. In order of popularity, the most common sources of advice were parents (26), financial planners (23), banks (21), friends (18) and other family members (17). Virtually all (88) those who had used it consider the advice was useful, especially that received from parents, other family members, or Accountants. The willingness to, in the future, use a Financial Planner is quite widespread. Three quarters are prepared to do so, with a fifth (19) definitely likely and 30 probably likely to do so. Savings Patterns Among those with savings (97 of the survey participants) the average savings and investment (excluding their home) is estimated at $90,500. However Generation Y ($16,000) is considerably lower than Generation X ($113,000). The types of savings and investments are mainly superannuation (84), followed by interest bearing deposits in banks (63). SAVINGS PATTERNS Total N=450 Gen Y Gen X Average savings in each category $ Superannuation ,000 Interest bearing savings in banks or other organisations ,000 You own or are purchasing the home/unit/flat you live in Not asked Shares ,000 Investments in property other than your home (including Property Trusts) ,000 Managed investment funds ,000 Tax advantaged schemes, i.e. timber plantation, olive tress, vineyards ,000 Other investments ,000 No savings Page 3 of 6

4 Debt Patterns Half claim to be investing in the purchase of their own home. A third (36) have share investments, a fifth (18) property investments, and a sixth use managed investment funds (13). Generation X not surprisingly employs a greater range of investment types than does, presently, Generation Y. Generation Y rarely goes beyond Superannuation and interest bearing savings in banks. The estimated debt (including home mortgage) owed by the X and Y Generation is $118,000. Obviously it is much higher for the X generation (averaging $140,600). Generation Y only averages $21,500. The predominant type of debt used is Bank Credit Cards (64). Forty percent have a home mortgage. Personal loans from banks (23), line of credit (17) and overdraft facility (10) were other conforming sources. Non conforming sources of debt were used by significant minorities, and included credit cards from other providers (18), mobile phone debt (15), personal loans from other providers (10), and pay day loans (1). The usage of such sources of debt does not appear to be strongly associated with particular segments of the community. If anything, they are used more frequently by the higher income earners. The key exception is the higher mobile phone debt in the age group (Generation Y). Debt patterns Total Gen Y Gen X Average debt in each category $ Credit cards from banks ,200 Home mortgage from bank ,000 Personal loans from banks ,250 Credit cards fro other provider (such as store cards) ,700 Line of credit/draw down ,000 Mobile phone debt ,500 HECS ,500 Loan from family/friend ,600 Overdraft facility ,000 Personal loans from other providers ,200 Interest free loan ,400 Home mortgage from other source ,000 Pay day loans ,000 Other ,000 No debt Page 4 of 6

5 The biggest loans were for home mortgages, averaging $168,000. The table highlights the estimated size of the debt for each type by those who use it. There are clearly different patterns of debt usage between the X and Y Generations, and they basically reflect their lifecycle stages - Generation Y are currently lower users of home mortgages, credit cards, lines of credit and overdraft. Home Ownership In the current environment, only six in ten (59) believe home ownership is achievable for them, and Generation Y is less optimistic (51) than Generation X (61). Conclusions Four in ten believe it is not achievable. In this context, reactions are mixed to the NSW Governments abolition of stamp duty for houses valued less than $500,000. Less than a third (29) see it as being a great benefit while 32 see it as some benefit. A further third do not see a benefit. Generation Y is the most optimistic (83 see it as a great, or, of some benefit). Only 55 of Generation X are positive about it and the younger end of Generation X, the age group, are the least impressed only 46 believe it will be of some or great benefit. The key conclusions emerging from this study of the X and Y Generations suggest there is a strong concern over the financing of their lifestyles, but that debt is an acceptable part of meeting their current needs, now. However, virtually all believe they should have a constant income stream to finance debt repayments. In this context, a third now feel pressured to meet repayments due to increasing interest rates. There are concerns about preparing for their future, in particular, developing the saving patterns that will provide for retirement. However, most do see it as their own responsibility, and do not appear to be expecting government back up. Seeking advice on finance matters is quite widespread but often involves informal sources such as family and friends. However, there is an emerging widespread willingness to consider using financial planners (possibly with a reservation about the cost). Page 5 of 6

6 On average, debt levels (estimated at $118,000 including the house mortgage) exceed average savings/investments (excluding the house) of $90,500. Non conforming debt is used by significant minorities, but apart from the mobile telephone debt of Generation Y, it appears to be the well off financially sophisticated, section of Generation X who use such sources (especially store cards). The ratio of debt to income increases with the income level. That is, those who have a constant income stream were more likely to use a greater level of debt. For those earning under $30,000, the ratio approximates 1:1, but rises to 2 or 3:1 for over $50,000 income. In summary, while both Generations display some nervousness about saving for the future, and some reservations about using debt, most appear to consider that the best way to achieve their current needs is to take advantage of the availability of various debt options. Seeking advice to help in the management of finances does exist, and use of financial planners is an option that will be considered as half of them do not feel well informed about their financial options. Page 6 of 6