When it comes to Generation Y, also known as the Millennial generation, there are a lot of unfair stereotypes floating around. One that lies closer to the truth than others, however, is the daunting financial future that faces Gen Y.
Last month, the Australian Bureau of Statistics noted that Australia had experienced the lowest rate of wages growth since it began recording it in 1998. At the same time, the value of homes continues to climb ever upward, with the median price across the combined capitals hitting $658,608 in the March quarter, according to the Real Estate Institute of Australia.
All of this leads members of Gen Y to rightly wonder: “Will I ever be able to take out a home loan of my very own?”
Millennials and mortgages
More than any other generation in recent history, Millennials face a seemingly overwhelming burden of debt. They not only kick off adulthood with significantly sized student loans, but face getting into even further debt through skyrocketing home values.
According to the Future Leaders Index for 2015, just under 80 percent of young Australians are worried about their home loan debt, while a little less than 70 percent were anxious about the unpaid cost of their education.
Despite this, Millennials feel intense pressure to become property owners as soon as possible. This same report notes that 75 percent of them wish to take on a mortgage, despite their concerns about debt, and 72 percent believe buying property as early on as they can trumps renting. Likewise, a study from BNY Mellon and the Said Business School at the University of Oxford found that buying a home was the highest priority for Gen Y, at the expense of education and even retirement. The example of their parents and grandparents, some of whom became home owners when they were barely out of their teens, no doubt looms large for Millennials.
Gen Y: Thriftier than given credit for
The hurdles faced by Gen Y in becoming homeowners may be large, but they are not insurmountable. Promisingly, there is enough evidence that, contrary to popular myths, Millennials are more financially savvy than is commonly assumed.
The Future Leaders Index tells us that the majority of Millennials have both long- and short-term financial goals, with 69 percent implementing a budgeting system. Furthermore, they are using a variety of strategies to save more, namely a combination of taking on full-and part-time work while studying, and saving money by shopping smarter and eating in. This thrifty behaviour means 93 percent of those in the 18-29 year age range have set aside money in their savings accounts — an average of $8,271.
While this may not be a princely sum — and may not be enough to afford a home deposit in today’s housing market — it’s a start. Having the right attitude toward financial matters can sometimes be half the battle.
How do you solve a problem like Gen Y has?
Of course, the other half is actually building up the funds needed to afford a property. Just because Millennials are contending with higher house prices than ever doesn’t mean they’re entirely shut out of the market. In fact, they have two potential advantages: Their youth and their parents.
Both reports show that Gen Y is intensely inclined to approach their elders for assistance. The BNY Mellon study reveals that around 52 percent of of Millennials approach their parents first for financial advice. Meanwhile the Future Leaders Index found the majority of 18-29 year-olds receive direct financial help, or use their parents as guarantors, to help them afford the large value on their home loan.
Getting the help of parents can be a good strategy for Millennials looking to get their foot on the property ladder. Provided that the parents agree, and the actual home owners are financially responsible, it’s a way of making up for the fact that young people in many ways have it harder than previous generations.
It’s also important to remember the advantage of youth, however. If Gen Y finds a high interest account that works for them and starts steadily putting money away into it now, they can make use of compound interest to grow their savings progressively. While this is not going to be instant solution, over the course of a decade this can add up.