Boomers, we are not to blame.
I’ve talked about the intergenerational wealth wars a lot in the past where younger Australians begrudge older Australians for everything from pushing up property values and living a more lavish lifestyle, to retiring on supposedly excessive superannuation payouts.
As I’ve said before, these intergenerational wars of financial envy are not new and will continue into the future. I envied my parent’s lifestyle and wealth just as my adult children do mine and their children will with them.
The wealth gap in favour of older Australians, of any era, is because they’ve worked longer, saved longer and invested for longer. It’s that simple and, frankly, that’s life.
The pressure on the current day Bank of Mum and Dad is a result of adult children wanting a share of their parent’s wealth and their inheritance earlier. Often to the detriment of the parent’s retirement lifestyle.
Judith Sloan weighs in
I was interested to read a column on the issue by economist Judith Sloan in The Australian this week. As I’ve suggested, Judith believes the wealth gap between generations has not really changed over the decades and many of the arguments are flawed.
She makes these really good points:
- Wealth still peaks at age 50 with wealth plateauing around the ages of 75 to 80, because of higher life expectancy compared with several decades ago.
- The current older cohort benefited from the purple patch of economic reform that occurred from the mid-1980s to the early 2000s. They are the reforms of Paul Keating and, to a lesser extent, Peter Costello as Treasurers. And that is why the Bank of Mum and Dad has the resources to meet family funding pressures.
- While today’s retirees and older workers appear to enjoy big superannuation payouts, their adult children will retire with vastly more wealth by comparison because of compulsory superannuation. Universal superannuation came into existence in the early 1990s with a contribution rate of only 3 per cent. It has taken more than 30 years for the contribution rate to reach 12 per cent. So today’s working adults will have received much higher compulsory superannuation contributions for much longer than their parents.
- It is misleading for some economists to claim that older Australians in retirement now have similar average incomes to working Australians and should therefore be taxed more. These claims often include unrealised capital gains as income, as well as government spending on health services for older Australians – neither of which are included in income measures for younger Australians.
If, as Judith suggests, economic wellbeing is measured by consumption rather than income, the picture of intergenerational inequality appears far less pronounced.
Plus, there’s something else overlooked in the intergenerational wealth gap debate …
A super idea
Compulsory superannuation, introduced by former Treasurer Paul Keating, has been a massive wealth builder for average Australians and the major beneficiaries will be young Australians.
It is an incredibly good forced savings scheme – one that underpins the wealth of every Australian and ensures the stability of our financial system and economy.
Australia’s superannuation scheme is also one of the best in the world. It is the envy of many other nations.
So the intergenerational wealth gap exists, and rightly so, but those born after super was introduced can look forward to an even bigger superannuation nest egg – in time.
