New study: Gen X might never own homes

New study Gen X might never own homes

Are the terrible saving habits of Generation X hindering their hopes of home ownership? Jack Han reports.

September 25, 2009

Saving to buy a home may be further away than imagined for Gen X, as their spending sprees and fewer funds in their savings accounts are dryer than ever.

A study has shown that Gen X is unlikely to ever own a home because their baby boomer parents have spent their inheritance.

The Flinders Institute for Housing, Urban and Regional Research (FIHURR) has recently released findings which show that home ownership for low income earners over 45 years old and medium-high income earners under 45 years has fallen by 15 percent from 1986-2006 .

It has also found that while the First Home Owners Scheme encouraged home purchases for Gen Y (under 25 years old), Gen X (25-44 years) is struggling for home ownership because property prices remain high and “their baby boomer parents are spending their inheritances”.

If our national income continues to be exhausted by higher house prices, Dr Joe Flood, who revealed the FIHURR findings earlier this month, says that “Australia will have to get used to being a country of low home ownership, people living with their parents, and small houses by international standards.

“The country that promised limitless land, cheap housing and near universal home ownership to all comers now has the most expensive housing in the world”, he states .

But one factor that is preventing Gen X from home ownership could be savings. In a Treasury report about household savings published last year, statistics show that for the last 30 years since the mid-1970s , household saving in Australia as a percentage of disposable income has steadily declined, from a peak of 18 percent in 1975 to only 1.8 percent this March quarter .

So why are we saving so much less? One of the biggest reasons is the rise of capital gains over the years. Because capital gains encourage consumption and is not recorded as income, this is lowering our household savings ratio .

The other big reason is easier access to credit, such as the introduction of credit cards, which allows us to consume more, and with better convenience .

The Treasury report also spelled out the way that we save. Besides saving for precautions or saving for inheritance, Australians approach savings differently at certain stages in our lives. We tend to spend instead of save when young, save and pay off debt in peak income years (around middle age) and tap into our accumulated savings in retirement .

So now we can see that the savings habits of the baby boomers could be the right path to home ownership in struggling times.

For example, Amelia earns $1200 a week, and wants to save $40,000 for a home deposit. If she saves as much as she normally does, at $60 a week (5 percent), it will take her 10 years and seven months to reach her goal. However, if Amelia boosts her savings ratio to 20 percent ($240 a week), she will be able to afford a deposit in only three years and three months .

This also assumes that Amelia constantly keeps her savings in the highest rate savings accounts, which today is the UBank Usaver, at 5.11 percent.

Even with rising prices and inheritance woes, the key to home ownership for Gen X and Y is a strong approach to saving. There’s a good reason that baby boomers were able to secure homes despite very high interest rates and restricted finance, so take a savings lesson from your folks, and prove that the the Australian dream of home ownership is still alive in your generation.

 

Related Links

Did you find this helpful? Why not share this article?

Advertisement

RateCity
ratecity-newsletter

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By submitting this form, you agree to the RateCity Privacy Policy, Terms of Use and Disclaimer.

Today's top savings accounts products

Advertisement

Learn more about savings accounts

Can you have multiple ING savings accounts?

Yes, you can open up to nine accounts with ING at any particular time. If you’re saving money for various goals, such as buying a car or taking a holiday, you can name each of your multiple ING savings accounts differently.

To get a Savings Maximiser account, you’ll need to deposit more than $1000 every month and make at least five additional purchases. If you also want to grow your savings, from 1st March 2021, you can earn up to 1.35 per cent per annum variable interest on one account with a balance of up to $100,000 when you also maintain an Orange Everyday account.

With ING, multiple savings accounts can help keep track of all your savings goals. All the accounts offer flexible withdrawals where you can withdraw as low or as high as you want without impacting your earning interest rate. However, you can only earn the bonus interest on one account. To apply for a Savings Maximiser account, you can visit ingdirect.com.au.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Should I open a Commonwealth locked savings account?

If you have trouble saving money, a Commbank locked savings account could be a potential solution. A locked savings account won’t let you make withdrawals and as such, it can help you grow your savings balance if you keep topping it up. 

The Commonwealth locked savings account advertises high-interest rates and minimal maintenance fees, along with a host of other incentives that will encourage you not to touch the money. 

The account offers a higher interest rate for each month that you make limited or no withdrawals, as well as regular deposits. 

To qualify for a Commonwealth locked savings account with the advertised features, you will need to fulfil specific criteria such as:

  • Depositing a fixed minimum amount into the account every month.
  • Making a fixed number of deposits each month.
  • Making a minimum or no withdrawals each month.
  • Maintaining a minimum account balance.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

What is an ANZ locked savings account?

An ANZ locked savings account locks your money and prevents you from spending. You may use a standard savings account as the account where your salary is deposited. You can then withdraw funds when needed, but aren’t able to make purchases with it. However, this account may not grow much as the continual withdrawing of funds will limit the interest you can earn.

With a locked savings account in ANZ, you know your savings will grow because you can’t access the money. You can also qualify for a bonus when you deposit at least $10 per month and don’t make any withdrawals. To help you with this further you can set up an automatic transfer from your regular ANZ savings or transaction account so you don’t forget to make a monthly deposit.

Your ANZ locked savings account offers you a base interest rate of 0.1 per cent per annum plus an additional bonus interest of 0.49 per cent per year. The interest is calculated daily and credited to your account on the last working day of the month.

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is a Westpac locked savings account?

The Westpac locked savings account (also known as "Westpac Life") can help customers reach savings goals faster through bonus interest. Customers receive 0.2 per cent standard base interest with a variable bonus rate of 0.35 per cent when the closing balance at the end of the month is higher than the opening balance.

There are some conditions to earn the bonus interest on Westpac's locked savings account, though. First, you’ll need to increase the balance each month either through a deposit or not making any withdrawals, and then link it to a Westpac Choice account and make at least five eligible payments using your debit card. Please consult your bank as to what an eligible payment is. 

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.