Young save more, then spend more
Research by the National Centre for Social and Economic Modelling has found that young people are better savers than their elders, while the older generation is increasingly using superannuation to pay off debt rather than to fund retirement. However, young people also spend their savings rather than using them for wealth creation – buying cars, travelling or buying luxury goods.
The report – “Who Are Australia's Best Savers?” – was commissioned by the Financial Planning Association; 1,500 people were surveyed. The report says that fewer than half of the households surveyed could save any money, a deterioration since 1999. 15-20 per cent of households surveyed lived with debt that took half their net wages to service.
Of those who did save, the largest group was people aged 25 to 34. In the empty-nester group, aged 55 to 64, traditionally thought to be the best savers, three-fifths said they're not saving, and 15 per cent said they were “going backwards” by drawing on savings or going into debt. Nearly 10 per cent had credit card debt, 3 per cent owed money on bank loans, and one per cent were paying off cars.
In retirement this relatively high level of debt drops off, said the report's co-author Simon Kelly, indicating that superannuation is being used to retire debt. He described this as a “worrying trend”, as there will later be a gap between what people want to do and what they can afford.
The young are saving to enjoy themselves, Mr Kelly stated, with only one-third of 25-34 year-olds saving to buy property, a long-term asset. A third were saving for holidays, and one-fifth for cars or household items. The FPA's national policy manager, Con Hristodoulidis, said people seemed to think that compulsory superannuation means someone else is saving for them and they don't need to do it themselves. He said people need to be encouraged to meet short-term savings targets, rather than one long-term goal.