Young Australians financially “devastated” by COVID-19

Young Australians financially “devastated” by COVID-19

Young Australians are bearing the brunt of the coronavirus-induced economic downturn, but may have to foot the COVID-19 bill during their working lives, new research suggests.

Nearly one third of Australians aged 30 to 44 said that the coronavirus crisis has “devastated” their personal financial situation, according to a J.D. Power survey of nearly 2,000 Australians, conducted June 24 to July 13. This figure is up eight percentage points from 23 per cent when the previous survey ran in May.

As unemployment soars, more younger Australians have lost their jobs than those in older age groups. Almost one in five millennials, or those aged 18 to 29, have temporarily lost their job, while eight per cent became permanently jobless. COVID-19 has cut working hours for 37 per cent of this age group.

More millennials are relying on government financial support, such as JobKeeper and JobSeeker, than older Australians. More than half of millennials are on some form of government welfare, while 49 per cent of those aged 40-plus are on government benefits.

Bronwyn Gill, head of banking and payments intelligence at J.D. Power Australia, said it wasn’t just young people who were financially affected by COVID-19.

“While the effect has been greater for younger people, particularly in the initial months of the pandemic, many people across all salary levels indicate the pandemic has devastated or severely hurt their financial situation,” Ms Gill said.

“With an increasing number of redundancies of salaried employees, one in four with (an) income more than $100,000 are also saying they have had their finances devastated or severely hurt. The effect is very widespread.”

What are the longer term financial impacts of COVID-19 for younger Australians?

Despite being heavily hit by the pandemic, young Australians are likely to pay for the cost of dealing with the crisis through higher taxes during their working years according to new research from the Productivity Commission (PC). Government stimulus measures have ballooned to some $289 billion, or 14.6 per cent of the nation’s gross domestic product. 

More broadly, young Australians’ income has been found to be on the decline, and there’s a risk that this may worsen due to COVID-19. Between 2008 and 2018, income growth has slowed for those aged 15 to 34, but this hasn’t happened for those aged 35-plus.

“Young people have experienced a ‘lost decade’ of income growth. This means they entered the COVID-19 crisis already on lower wages and usually with limited savings,” PC commissioner Catherine de Fontenay said.

“Young people face discouraging prospects in a tough job market; and there is a danger they will simply give up on their aspirations as they take positions further down the jobs ladder.” 

The study also noted that recovery prospects for the sectors most affected by the pandemic, including retail, hospitality and tourism, are uncertain, which may keep unemployment among young people “high for some time”.

As a result of the slower income growth, young Australians have found it more difficult to build their savings as effectively as earlier generations, with many young people wiping out their savings during COVID-19, according to the report.

What are your options if you’ve been financially affected by COVID-19?

If you’re a young person who has been financially hit by the pandemic, you’re likely to be in the same boat as plenty of others. The good news is that there are a few options you may consider to better manage your personal finances, and potentially save more money.

1. Switch to a high-interest savings account. Some lenders may offer higher interest rates for young people. One example is Westpac’s Life savings account, which has a maximum rate of 3 per cent and a base rate of 1 per cent for those aged 18 to 29. Bear in mind that you may need to satisfy some conditions to achieve the maximum rate. 

2. Change credit cards. It can be easy to accumulate credit card debt, with the purchase rate on some cards reaching an eye-watering 20 per cent. If you don’t want to lose your credit card, there are low-rate options worth considering on the market. The lowest credit card rate on the RateCity database comes from G&C Mutual Bank, which has a 7.49 per cent Visa credit card. The credit card with the lowest purchase rate may not always be the best option for you, so aside from the rate, it’s best to compare fees, features, as well as the terms and conditions. 

3. Load up your super. This option may be something to think about further down the track, but it could be a good idea to boost your super balance if and when you’re in a financial position to do so. Remember that your super is your retirement money, and young people have the benefit of time to allow your nest egg to grow. Topping up your super balance over time may mean a higher balance when you retire. However, everyone’s financial situation is different, so you may want to consult a financial adviser before making decisions about your super.

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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

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. 

What are the requirements of an ING Bank locked savings account?

An ING bank locked savings account - also called a term deposit - offers you interest in exchange for holding your money for a period of time.

The terms offered include as little as 90 days or as long as two years. Generally, the longer you lock your money away, the higher the rate of interest. 

The minimum deposit amount for an ING locked savings account is $10,000. 

To be eligible to apply, you must: 

  • Be an Australian resident for tax purposes
  • Be aged 13 years or older
  • Hold the account for personal use (ING offers business term deposits as a separate product). 


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.

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.

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

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 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.

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.

Do I have to claim interest on my savings account?

When you lodge your income tax returns, you must include in the documentation all your sources of income, including bank interest. Your bank will report any interest you earn on the funds in your savings account to the Australian Tax Office (ATO). When the ATO then compares this information with your tax returns,  you also need to have mentioned the interest earned. If there is any discrepancy, you’ll receive a letter from the ATO. 

Avoid this situation by ensuring you receive your bank statement with interest noted. Then declare the interest in your tax returns and pay the tax that’s applicable based on the income tax rate.

You only need to claim your share of the interest earned for joint accounts. If you manage an account for your child and receive or spend money via this account, you will also need to report any interest earned from said account.

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.

Should I open multiple savings accounts with UBank?

UBank offers customers an opportunity to make the most of their savings by opening multiple savings accounts. Having multiple savings accounts with UBank may be ideal for savers tracking different goals in separate accounts. 

It’s important to note that to earn bonus interest, you will still need to meet the conditions of the UBank savings account every month. If you don’t make these deposits, you will receive the standard interest rate, which is typically lower. 

Keep in mind that you won’t earn bonus interest on your UBank savings account in the month an account is opened and if you open multiple savings accounts with UBank, you'll start earning any bonus interest the following month. 

It's also not yet known how long the special interest rate will hang around for, so please check with your bank for more information. 

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.