In brief
- Analysis suggests that younger Australians will face different costs and windfalls throughout their working life.
- Researchers say current generations will be better off, but will face challenges to retiring comfortably.
Young Australians will not be worse off than their parents' generation, according to new research, but are more likely to struggle from "frontload costs" early in their working life.
Analysis from the E61 Institute, a non-profit research group, found Australians will likely surpass their parents' wealth, despite rising concerns about housing affordability, wage stagnation and living costs.
The authors argue that while younger people may face more current economic challenges than previous generations, by the time they retire, they will be better off.
But some young workers could end up less financially secure than their parents, as inheritance transfers will increase inequality between richer and poorer families.
What did the data show?
E61's report found that income and government support varied across age groups, but that over the life cycle of one's career, most would outearn the previous generation.
The report compared younger workers' incomes with those in past decades.
It found the average inflation-adjusted income of a 35-year-old in 2023 was about $90,000 — almost 80 per cent higher than the average 35-year-old in the late 1980s — though younger Australians are increasingly earning more later in life rather than earlier.
Median household wealth for a 35-year-old was about $380,000 in the latest available data, broadly in line with previous generations at the same age, with younger Australians "buying homes later but building up bigger super balances over longer careers".
Younger Australians are also facing more costs earlier on in their careers, such as university HELP loans and debt, which the report described as "frontload costs".
Meanwhile, older Australians, particularly those who own their own home, will experience much greater financial security upon retirement.
A slower start
Angela Jackson is an economist at the Productivity Commission, the Australian government's independent economic advisory body.
She said that Australia typically has high income mobility, meaning most people's economic success isn't tied to their parents' economic background.
While most people, excluding the richest and poorest, will have a "fairly equal" opportunity to those of previous generations, young workers tend to begin their careers later.
"More people are going to university and so spending longer in education, and they may be in casual jobs during that time," she told SBS News.
"So, they're taking time to go into the more skilled workforce, and so their incomes aren't growing as quickly."
Jackson added that younger people in lower-earning jobs are also seeing slowing wage growth and increased competition from international students and migration.
While they may outearn their parents, younger workers today could face greater financial insecurity and pay rent for much longer, she explained.
However, studying for longer tends to pay dividends throughout one's career, according to E61, as income grows at a faster rate and ends up higher over time.
Greater asset wealth later in life
E61's reporting found older Australians have benefited from "a large and lightly taxed windfall as asset prices have risen", with rising housing and asset values significantly boosting wealth later in life.
Much of the wealth growth is tied up in unrealised capital gains on the family home, and, on top of that, older homeowners who never sell.
These profits accruing to older Australians are largely being held rather than spent, meaning they will flow unevenly to younger generations through bequests.
Jackson said this will lead to financial inequality between people who do and don't receive an inheritance.
"There is a lot of uncertainty around inheriting money from parents … for younger people who maybe would prefer to have their own future in their own hands, it might not provide them the comfort that perhaps we would hope," she said.
Will young people retire better?
A key part of Australia's wealth is superannuation.
The current mandatory Superannuation Guarantee rate in Australia is 12 per cent of ordinary time earnings.
Jackson said that superannuation is an important resource for retirement, but that living comfortably is more tied to owning your own home.
"Unless you own your own home, income insecurity and retirement are issues," she said.
E61 said that we are also facing long-term economic challenges, such as slower productivity growth and an ageing population.
Researchers warn Australia's fiscal system was "built for stronger productivity growth than we have now," increasing pressure on future generations to sustain existing tax and transfer settings.
The report said that the government could look to economic reform to reduce inequalities, such as tinkering with capital gains taxes or changing the GST.
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