👧👨🏼🦳Baby Boomers vs. Gen Z: The latest CommBank IQ Cost of Living Insights report has made some shocking revelations about how Australians are grappling with the unknowns of rising living costs. 💳 Defying economic gravity in discretionary spending: Amid the storm of rising spending on necessities like insurance, medical costs and pharmacy items, Australians are taking an unexpected path. They are cutting back on traditional discretionary spending such as clothing and home goods, which declined 8.1%. Nevertheless, defying the economic headwinds, travel and leisure expenditure recorded a notable growth of 8.2% and 8.6% respectively. 🎫 Young people tighten their wallets but embrace their entertainment: the 25-29 age group who are in a unique bind. This group saw a 5.1% decline in their total spending, being the only age group to tighten their belts on both the essential and discretionary fronts. However, they have been enthusiastically engaged in entertainment and have increased spending in this area by a dramatic 13%. 🌆 A geographical divide emerges: The report paints a vivid picture of a divided spending landscape. In a twist, Australians in regional areas are outspending their metropolitan counterparts by a significant margin (2.9% vs. 1.2%). The gap is most acute in New South Wales and Victoria, where city dwellers are struggling with rising rents and mortgage repayments. 📉 The generational spending saga: The under-40 demographic, typically weighed down by housing costs, is seeing a decline in spending year-over-year. In contrast, people over 70 are riding a wave of financial freedom, and are the only group to show above-inflation growth in spending. In summary, the CommBank IQ Cost of Living Insights report highlights the emerging priorities of Australians under economic pressure. For a deeper dive into this spending behavior, please read the full Cost of Living Insights report below.
Australians are cutting back on their household budgets due to higher interest rates, but one group is benefiting from higher interest rates on cash savings: retirees. According to the latest data from CommBank IQ, people aged over 65 spent at a rate higher than inflation last year, increasing their spending on travel (+19%) and eating out and takeaway (+11%) . Meanwhile 25 to 29 year olds made significant cuts to their budgets, pulling back on essential spending (-3.7%) and discretionary purchases (-6.2%). Economist Chris Richardson says retirees who have paid off their mortgages and are earning income from bank deposits are likely to benefit from the high-interest environment, while younger couples are worse off. “The real cost of living pressures are in the ‘young couple economy’ – millennials in their 30s and early 40s, who have OK salaries but huge mortgages. For them, the story of higher borrowing costs is the dominant story,” Richardson told LinkedIn News Australia. How have higher interest rates affected your spending? Do you think higher rates are good news for Baby Boomers overall? Share your thoughts in the comments below. ✏ Misa Han Source: Sydney Morning Herald
Cost of living pressures are rising, but a generation is being wasted
Boomers are braving cost-of-living pressures and spending more than any other segment. Source: CommBank Analytics
35 per cent of Australian homes are owned with a mortgage and 31 per cent of homes are owned without a mortgage, many of which are owned by people over the age of 50. The Australian unemployment rate rose to 3.7 percent in October. According to the Australian Bureau of Statistics, a net 54,900 jobs were added this month. Of those, 17,000 were full-time positions. The jobs data showed the wage price index rose 1.3 percent in the September quarter, the largest quarterly increase in the 26-year history of the survey. The 4 percent annual pace was also the highest in more than 14 years. Keeping open the possibility of another Reserve Bank of Australia interest rate hike. The chances of a 14th rate hike on December 5, 2023 are still probably less than 50 percent, with the bank board not meeting again until February 2024 and holding six-weekly meetings thereafter. The cash rate is now 4.35 per cent, and while many mortgage-holders are feeling the pinch, there is a large population in Australia that is quietly enjoying the high interest rate environment. Many retired people in the country are sitting pretty. 4.1 million Australians who rely on passive income from pensions, investments and cash savings to support their living costs and lifestyle. For a large portion of retirees, rising cash rates are going to boost their income, spending and confidence. Especially as they age, and become increasingly dependent on less risky income sources such as cash. For people who own their own home and have built up a comfortable cash reserve through savings, rising interest rates are usually good news. Those people, if they invested any money in cash, have enjoyed a 1.5 per cent pay rise over twelve months and, presumably, a positive bounce in their consumer confidence. Encouraging responsible spending and economic stability. Rising interest rates can act as a stabilizing force for the broader economy, reducing any impulsive spending by younger generations. While those who own their homes on a mortgage face increased costs, this environment encourages generations who have not seen as hard times to adopt more responsible spending and borrowing practices. For retirees who have lived through economic ups and downs not seen in many decades, this financial control seems necessary and important to teach our younger generations. When interest rates rise, especially in a sustained manner over a long period of time, it increases their income, and increases their confidence that that income can support their expenses. Retirees, feeling more confident about the stability of their investments and income sources, may be inclined to increase their spending. This increase in consumer spending could have positive flow-on effects on various sectors of the economy that are driven by people over 50, such as travel and leisure, driving business growth and contributing to overall economic resilience in Australia.