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Widening generation gap gives little comfort

The gap in financial comfort between younger and older generations is continuing to widen, according to a survey by ME Bank.

ME’s ninth biannual Household Financial Comfort Report found that while the comfort of ‘builders’ (aged 75+) and ‘baby boomers’ (aged 50-74) has improved by 16 per cent to 6.38 and 14 per cent to 5.85 respectively since its first survey in October 2011, the comfort of ‘Gen Y’ (aged 18-34) and ‘Gen X’ (aged 35-49) has remained broadly unchanged over the same period.

For these age bands, it is up only 2 per cent to 5.56 and 3 per cent to 5.16 respectively.

The report indicates ownership of assets including property, superannuation, shares and managed funds is largely fuelling the divergence.

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Commenting on the findings, Jeff Oughton, ME’s consulting economist and report co-author, said: “Recent gains in the macroeconomic and financial environment including significant rises in property and equity values, has disproportionately lifted the financial comfort of older generations who tend to have higher levels of asset ownership or investments.

“The findings add to recent policy debates around housing ownership and affordability, and the generosity of superannuation tax concessions for wealthier Australians.

“They highlight the importance of housing and superannuation as important wealth generators with both contributing to higher levels of financial comfort. They suggest that wealthier Australians may be better able to manage any wind-back to super tax concessions, while remaining at a relatively high level of financial comfort.”

Mr Oughton said the disparity in financial comfort between generations was largely due to older generations enjoying substantial improvements in their investments and income primarily through real estate and superannuation.

“Gen X and Y have smaller investments and continue to struggle with property ownership, so have benefited to a much lesser extent.”

Mr Oughton said younger generations are more likely to rent, reflecting the increased difficulty when it comes to getting on the property ladder. The issue was exacerbated for the younger generations as prices and rents have grown faster than incomes, particularly in capital cities, he added.

Overall, ME’s Household Financial Comfort Index rose 3 per cent to 5.59 out of 10 in the six months to December 2015, equivalent to about 65 per cent of Australian households reporting mid-to-high financial comfort.

This result reversed some of the fall from the previous six months and was the second-highest financial comfort result recorded since ME started the survey.

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