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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Learn more about savings accounts

What are the two types of NAB locked savings accounts?

With a locked savings account in NAB, you can earn bonus interest and learn financial discipline. NAB offers two types of locked savings accounts, each with their own terms and conditions.

The NAB Reward Saver account pays a variable base interest rate of 0.05 per cent per annum and a bonus interest of 0.55 per cent. You’re eligible for the bonus if you make a minimum of one deposit on or before the second last banking day and have no withdrawals in the month.

Meanwhile, the NAB iSaver account provides 0.05 per cent as the standard base interest rate and a fixed bonus margin of 0.55 per cent during the first four months from the date of opening the account. You can park your cash in the account and enjoy unlimited monthly transfers between linked daily bank accounts without impacting the interest rate.

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.

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 good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

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 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.

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.

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

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.

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.

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.