Young people often lament that Baby Boomers had all the financial benefits, with access to cheap housing and education. However, it's not all bad news for Millennials who have some major advantages over their parents when they were the same age.
It's a common refrain whenever anyone who looks over 60 attempts to enter the debate on personal finances or provide advice on how to get ahead.
Compared to Millennials, the Baby Boomer generation had access to a range of financial advantages, including much cheaper housing and education. There's a commonly held belief that the well-trodden path to wealth that many Boomers followed - find a decent job and buy property - is being denied to today's younger generations.
Despite interest rates peaking at 17.5 per cent in January 1990, the fact is housing was far cheaper and loans much smaller back when Boomers were younger.
In 1990, the median dwelling in Australia cost under four times the median annual household income, while today it's closer to 8.5 times. According to the 2021 census, just over half of Millennials (aged 25-39) were home owners. This compares to two-thirds of Boomers at the same age. Boomers at the same age were also three times more likely than Millennials to own their home without a mortgage.
And while recent rate rises are cooling the property market, the banks are now lending less to people given higher repayments. This particularly affects those in insecure work, which is often younger people, and is creating additional barriers to buying a house.
Simply put, building a portfolio of properties and retiring rich on real estate is not what it once was.
However, every generation has opportunities as well as challenges. For Millennials, there are a host of advantages that were not available to their parents at the same age.
Let's start with superannuation. Until the introduction of the Superannuation Guarantee in 1992, which required a 3 per cent super contribution from employers, putting aside a large amount of savings for retirement was largely unheard of.
Many Boomers spent their 25-39 years paying down a home loan with high interest rates, thinking little of retirement until panic set in around their 40s about a lack of savings. In 1989, less than half of all employees in Australia even had superannuation. And until 2005, you had no right to choose which fund you contributed to.
Today, young workers are guaranteed 10.5 per cent employer contribution to super, which is legislated to rise to 12 per cent by 2025. For a person on an average Australian full-time income who contributes to their fund for 40 years, that could amount to around $700,000 at retirement, assuming historic returns on super.
The fact that young workers start contributing so much earlier these days is a huge advantage compared to Boomers, as the principle of compound interest works its magic. This is before you even get to any additional salary sacrificing, which provides for exceptionally generous tax breaks.
A second advantage is the accessibility of entering the stock market. When Boomers were young, it was far more difficult to invest money into shares. You had to find a stockbroker, fill out the required paperwork, pick the right companies to invest in, and stump up minimum investments - often thousands of dollars.
These days, anyone can buy shares in Australia's, and the world's, biggest and most profitable companies simply by logging onto a share-trading app. What's more, the brokerage fee and minimum investments are a fraction of what they used to be.
And, through exchange-traded funds (ETFs), Millennials have the luxury of riding the entire market rather than picking individual companies. You can now purchase across entire indices or sectors. This has significantly decreased the complexity of investing in stocks. You no longer need to pick a winner, it's enough to be in the race.
Australia is also among the highest-yielding equity markets in the world, which means relatively higher reinvestment and dividend payouts for investors.
As Millennials overtake Boomers as the largest generational group in Australia, the most precipitous rise in interest rates in 30 years, and rising cost of living, is wreaking havoc on younger household budgets. It is likely that the path to wealth through property will remain more difficult than for previous generations.
However, it's important to seek out advantages where they lie. While it may be true that Boomers in their earlier years were able to capitalise on cheaper housing and education, this doesn't mean that younger generations can't grow wealth. There are now a range of investment options that were not available to Boomers at the same age.
By understanding how to take advantage of these innovations, Millennials can forge a new, less-trodden path to wealth and financial security.
- Kim Northwood is author of Work Less, Make More: The Millennial's Guide to Financial Freedom (May 2023, Melbourne Books), and a long-term investor and entrepreneur. He was formerly an adviser to Australia's trade and investment minister.