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.


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Learn more about savings accounts

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

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. 

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.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

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.

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 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.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

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.

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.

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 I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

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.