As we go through lives we are pigeonholed – man, woman, executive, tradesman, graduate, parent – this is done in an attempt to understand ourselves and each other, what motivates us, where we’re going and how we’re planning on getting there. Another popular classification which allows us to assign certain characteristics to a group of otherwise unrelated individuals is that of their generation.
The Baby Boomers are the post-war generation, born between 1946 and 1964 who, if they are not already retired, are looking down the barrel at the last handful of their working years. However, it is their children and grandchildren, Generations X and Y who are well-positioned to research and understand investments and plan for their retirement, so it is now it’s time to see what they’ve learned from their parents, and how the world and economic changes have shaped their relationship with money.
As much as we try to deny it, we are a product of our upbringing and just as you will hear yourself scolding your children in the same way your parents chastised you growing up, you form an attitude and understanding of money from your parents, so is it Generation X or Generation Y who are better positioned as the financially secure future generation.
Savings Statistics for Generations X and Y
Generation X is those born between 1965 and 1976, while Generation Y comes in from 1977 to 1989. Compared to the Baby Boomers, Generations X and Y have grown up in a time when the economy is significantly more turbulent and this difference is demonstrated in their greater savings abilities.
However, compared to each other, Generation X and Generation Y still have some significant differences in their savings abilities. For example, a survey of more than 1,500 adults in the US conducted by Maritz Inc, found that a quarter of the Gen Ys was putting money into their 401K and their retirement savings account, while 23% of the Generation X members surveyed were doing the same. The good news is that so many people are taking advantage of the opportunity to save for retirement, with the key being making regular contributions to long term savings accounts to take the greatest advantage of compounding interest.
A survey by financial institution RaboDirect has also found that Generation X appears to be less savvy with their money than the younger Generation Y, were of all the Generation Xers, a disproportionately high number of them are struggling with large debts, and a high number of them feel like they are in the red. A third of Generation X have said their savings would only last them two months if they lost their job, and more than a third admitted they have to scrimp and save just to make ends meet.
Findings from many studies have revealed a fatal flaw with the savings of Generation X, who are struggling with homeownership because their Baby Boomer parents have spent their inheritance. While a cash injection from your parents is nice, it’s not to be relied upon, especially if your parents have their ideas about leaving you in the dust of their motor home. Generation Y however, were lucky enough to be able to benefit from government grants, although it is the savings habits of Generation X which is holding them back from homeownership as it is still Generation Y who is the most savings conscious, having taken the lessons from the GFC to heart, and more importantly – acted on them.
Savings Habits of Generations X and Y
The reality is that we are all spending more than we used to, regardless of our generation or situation, partly because it is so easy to gain access to credit cards. The increase in capital gains also encourages us to spend more because we feel wealthier, and as the value of our houses, shares, and other investments goes up, this lowers the savings ratio in most households.
As much as the Baby Boomers are splurging now, to some degree they have earned the right to let loose because of their financial diligence earlier in life. Baby Boomers lived through one of the highest interest rate periods and yet they were still able to buy and hold onto their homes. They did this through careful saving and spending, and not spending more than they were earning – in fact spending much less.
Looking at the next generation, Gen X doesn’t appear to be following in their parent’s footsteps, and many are leaving the savings track together. For Generation X it has been easy to accumulate lifestyle debt such as credit cards and store credit to buy items such as fridges and couches on interest-free terms. Of course, these forms of credit aren’t a problem when used properly, but can become very expensive if you don’t stick to the interest-free days and let the interest accumulate and them compound.
Generation X also spent a lot of time studying and as a result accumulated a HECS debt, or acquired student loans which they now have to repay. Their time in tertiary education also meant they entered the workforce later and waited longer than their parents did to acquire assets. However, those with money to invest in the 1980s were able to take advantage of the rising asset prices and learned to manipulate and profit from the stock market in a way that no generation before had done.
Generation Y has grown up in the information age with the ability to find the information they need quickly and easily and as a result, have a high level of financial literacy. Having this sort of instant access to information has also meant that many Gen Ys expect instant results and instant gratification – spending up big on depreciating assets such as information technology, cars, clothes, and furniture. However as the statistics from around the world have shown, it is Generation Y who are the more savvy savers as they use their desire for and access to information and ideas, to look ahead and find ways to make their actions today, work for them in the future.
Tips for Generation X and Generation Y to Save
For Generation X who has long been paving the way in investment markets, you may be interested in turning your investment interests towards the property market. You still have several years until your retirement and the long term investment benefits of property and the benefits of negative gearing to save you at tax time can be a good way to recoup some financial strength and stability.
Generation Y needs to make sure they keep their credit card debt under control, otherwise, the benefits of any savings made will be canceled out by the credit card interest. Therefore, Generation Y may need to consider balance transfer credit cards to clear their debts, and this will allow them to focus on their at call high-interest savings accounts to easily make regular deposits.