Why saving money is almost impossible for young Australians

In an age where one French pastry a week costs more than private health insurance, breakfast for two is steeper than a tank of petrol, and houses in metropolitan Australia cost more than an 84-acre island off Vanuatu, it’s almost impossible for young Australians to save money.

But why are we cracking open our piggy banks five years into our careers, only to find an expired HelloFresh voucher and a few stray bobby pins? Here’s why.

‘Luxury’ costs

Throw-back twenty years to a time when a fiver for a Friday school lunch order would get you a pie, a packet of Cheetos and a Nippy’s chocolate milk. Now fast forward to 2017 where the same amount of money will buy you half a Jägerbomb. That’s not inflation – that’s a crime against humanity.

The reality is that while Millennials are being flogged in the media for enjoying the odd mashed avocado on light rye, the cost of living in Australian capital cities is about as suffocating as Myer on Boxing Day.

luxury costs

While ‘luxury’ items such as almond croissants may set you back $12 a pop at a ritzy inner-burb cafe, ‘essential’ items such as a roof over your head will cost you an average of $860,000 and $650,000 a piece to own in Sydney and Melbourne respectively, or $550 and $420 per week to rent.

It’s not the rising levels of ‘unnecessary spending’ among Millennials that’s putting a bullet in their savings dreams, it’s the skyrocketing cost of those dreams.

Housing affordability

House prices in Australia have reached eye-watering levels in 2017, in fact you probably have a better chance of getting into the Tokyo Olympics than becoming a homeowner in 2020.

Why?

 

Because a 20% deposit on a median-priced house in an Australia captial city ranges from $76,000 in Hobart to $200,000+ in Sydney, and if you’re putting away $200 a week, it’s going to take you between 7-19 years to save up enough to even think about browsing the property pull-out in The Age.

For this reason, most of us opt for renting. Unfortunately, recent property market trends released by Canstar show that rental prices are increasing across the majority of states by as much as 8% per year.

The bottom line is this: the cost of renting or property is rising faster than incomes are, which means saving for a house while you’re renting is near impossible thanks to a rapidly growing  price-to-income ratio.

millennial renting
The sharehouse life is forever.

This measures the number of years of average income it takes to purchase an average dwelling. It’s grown from 4.3 times in 2001 to 6.9 times Australia wide, with Sydney at an eye-watering 8.4 times and Melbourne at 7.1 times in 2017. So that means it takes about 8.4 years of average income to purchase an average dwelling in Sydney!

Cost of education

Between 1974 and 1989, university fees were abolished and higher education didn’t cost you a damn cent. Over the years, old politicians in government who’d completed their formal education for free decades ago decided to increase the cost of tertiary courses to the point where 2017 was an absolute kick in the guts for current and future students.

 

gradtuation
Adulting = paying HECS/HELP debt 😩

Here’s what went down:

  • The voluntary payment discount of 5% was removed.
  • Government funding decreased by 2.5%.
  • University fees rose by between $2,000 – $3,600 for four-year degrees.
  • A $42,000 income level for HELP debt repayments was proposed and approved, and will be enforced from July 1 2018, falling $13,000 from the original $55,000 income level.

Even if you completed your uni degree a decade ago, it still would have cost a lot more than it did for your parents (who probably paid a red hot nothing), and you may still be paying those debts off now.

These increases in the cost of education make saving for a major asset, like a first home, a financial nightmare.

Stagnant incomes

Recent findings by comparison site, Finder.com.au, reveal that a six-figure salary is the bare minimum required to repay a home loan in most capital cities today.

In fact Adelaide, Brisbane and Hobart are the only cities where annual paychecks below $100,000 can cover both loan repayments and living expenses. So basically, if you’re not on a six figure salary, you can kiss that two-storey rendered townhouse dream goodbye.

Take a second to wipe the tears from your eyes and regroup.

Suffice to say, if any of what you’ve read is resonating – you’re not alone. A lot, in fact most Australians aren’t taking home six-figure salaries. And if you’re not, you either need to consider a plan B, like renting, or being open to a long soul-destroying daily commute from the ‘burbs if you’re still determined to be a homeowner.

Another option is making money outside of your salary through long term investments like exchange-traded funds, which means that your money has the best chance to grow so you can afford a house further down the track.

The key to all financial success is in developing good savings habits early. Not only does a good budget help to ensure that you’re on track to meeting your financial goals, but having one in place can often make saving a lot easier in the long run too.

 

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