USA vs. Australia: A Comparison of Gen Y Finances

Posted on 19. Jan, 2011 by in Creating Wealth

gen-yThis is a Guest Post written by Tom Becker from CreditCardCompare

Although there is some debate, it’s largely accepted that Generation Y refers to young adults born somewhere between the early 1980s and mid-1990s, leaving a range that covers teens to late twenty-somethings and maybe even a few of those in their early thirties.  While geographical, cultural and age differences can make a large impact upon the outlook and handling of personal finances, it appears that Generation Y is standing out among other generations as one that is having significant difficulty handling their personal finances.  Of course, you can’t necessarily lump everyone of this age grouping into the same financial basket, however; it’s fair to say that a large portion of this generation is experiencing more than their fair share of financial planning issues.

In the USA

In the US, it seems that Gen Y personal financial problems are stemming not just from a poor economy and lack of jobs, but also from a combination of lack of personal finance knowledge and an accumulation of significant debt.  This age group is often associated more with the “must have now” mentality when it comes to the latest tech toys and gadgetry than Generation X or the Baby Boomers.  Costly education, a poor economy, and the inability to firmly grasp everyday personal financial issues seem to be forming a perfect storm, preventing this generation from furthering a financially responsible lifestyle.  And while with each passing day it appears this generation is digging themselves into an ever deeper financial hole, there are some options available to keep them from burying themselves completely.

401k and 403b Accounts

The stable, employer funded pensions of yore have largely been replaced by the more modern 401k and 403b, employer sponsored retirement accounts.  The ease and availability of these plans should make them an attractive option for those who lack the market wherewithal to make savvy investment decisions or don’t have the fortitude to make contributions to a self-managed retirement portfolio.  It seems that the tax incentives, ease of selecting investment options, ability to make deductions automated directly from paychecks, and even a recent market recovery would make these types of retirement accounts a no-brainer for those comprising the Y generation.  Unfortunately, due to heavy debt loads, the fact that Americans are unforced to contribute to such retirement options, a stagnating economy, lack of personal finance education and heavy unemployment, many younger individuals are ignoring these available methods of investing for their futures.  With the apparent inability of social security to secure the financial future in any substantive form for this generation without making major changes to the system, there may be little other choice but to eventually make this a forced contribution.

Housing

What was a terrifying prospect only a year or so ago is now be an immense opportunity for those of Generation Y. With mortgage rates lower than they’ve been in years and a glut of under-priced properties and foreclosures, real estate investment presents a great opportunity for those who have an eye on the future. While the government’s first time home buyer tax credit has come and gone and there are still more foreclosures bound to hit the market, young people who are looking for an investment for the long term and are willing to stay in a home for a number of years could find ample opportunity in real estate.  The problems for Generation Y however, still largely remain the lack of financial education along with a poor economy and extreme debt.  With Generation Y often not having a firm grasp upon how mortgages work, what the responsibility of home ownership entails, and the many associated costs that come along with owning and maintaining a home, paired with poor credit history, heavy debt, and a financial environment in which lenders are taking a closer look at personal financial responsibility, many of Generation Y would-be homeowners are caught in a vicious ‘Catch-22’.

Debt Repayment

With interest paying options such as savings accounts, certificates of deposit, and other safe investments offering little incentive to stash extra cash, one of the best bets out there for Generation Y may lie in paying off some of the heavy credit card or student loan debt that they might be carrying.  Making extra payments to student loan debt or high-interest bearing credit cards could prove to be one of the wisest choices to make right now in order to create any significant impact upon their financial future.  Such steps don’t take much investing savvy, only requiring putting extra cash toward a bill that’s already there.  Much of the problem facing young people of this generation however; is that they must find the financial fortitude to save their extra dollars in the first place rather than spending them on the latest fads.

In Australia

Australia’s Generation Y has similar issues to their American counterparts when it comes to preparing for their financial futures, tending to live more for the moment and shoving concerns about saving and investing aside to be dealt with later.  And while debt is certainly a factor in their inability or unwillingness to be forward looking, it’s not so much this aspect of their personal finances, but a lack of planning and knowledge.  That being said however, it still appears that there is a slightly brighter glimmer of light at the end of the tunnel for this Australian generation, which, furthered by more education and interest upon their part, could become a full-blown ray of sunshine.

Superannuation Accounts

Superannuation accounts present a wonderful opportunity for Australia’s Generation Y population.  Lack of interest and knowledge is so far keeping it from being a boon to Gen-Y’s financial future, but greater efforts by the Australian government as well as financial institutions are making these investment vehicles simpler to handle.  By visiting the Australian government’s website and clicking on the “Individuals” tab, superannuation account holders can find resources to help with the management of their account(s).  The site can help with finding lost accounts if a name has changed or if the account holder has moved or changed employers, as well as provide helpful information and calculators to increase knowledge regarding what can be a valuable asset in building a financial future.

Housing

While the housing market in Australia might not have taken the disastrous hit that it has in the US, there are still opportunities for young investors in this area.  Real estate for the long term, like in the US is still an attractive option if pursued correctly and knowledgeably.  Government sponsored FHSAs (First Home Savers Accounts) are an option to help people financially prepare to become homeowners, providing tax breaks and other benefits for those first time buyers who are willing to save responsibly for the possibility of homeownership.  To find out more about the FHSA program visit the treasury’s website.

Debt Repayment

Similar to American’s, there certainly seems to be a nonchalant attitude regarding financial preparation among Gen Y Australian’s, which certainly contributes to their debt problems.  However, it almost seems like it’s the inability to grasp the concept of delayed gratification that is truly hindering these groups on both continents.  While debt repayment is an attractive, and relatively simple financial step to take for young people in both countries right now, it appears that awakening to the fact that they don’t have to have everything immediately, and that not everything can be paid for later, are the first steps in acknowledging the debt issue.  Generation Y must first come to the realization that they must cut the flow of money pouring from their coffers in order to begin planning for their financial futures. Again, it largely comes down to a simply lack of education regarding personal finances and spending habits that is making this inability to save, plan, and repay debt, a growing concern.

The Result

When comparing the Y Generations of America and Australia, the Australian’s appear to have a slight leg up.  While it can be said that neither side has a positive outlook for the future, with often less debt to deal with and a brighter economic outlook, it comes down more to planning, education, and frankly, caring, for many Generation Y Australians.   Many Americans on the other hand are fearful of their financial futures, and actually do care, and would change had they the knowledge and ability to wrap their minds around the often massive debt loads with which they are straddled.  Instead, many are banking upon the college educations that are often the sources of this debt to provide them with jobs, only to find that the job they are getting after school (if they are lucky enough to find one) doesn’t pay enough to dig out from under that debt.

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4 Responses to “USA vs. Australia: A Comparison of Gen Y Finances”

  1. Jessica07

    22. Jan, 2011

    A big reason (in my humble opinion) that many Gen Y’s in America haven’t taken advantage of 401(k) opportunities, is because a lot of businesses only offer them to full-time employees. Many of the Gen Y population have part-time jobs nearing full-time hours (32 hours vs 40 w/ benefits), or multiple part-time jobs to help pay for all the “I wants” in their life. That outlook is quickly changing, but finding a job with benefits to get started with a 401(k) isn’t as easy as realizing you should be investing.

    My outlook for Australian and American Gen Y: Hopeful. 😉

    Reply to this comment
    • Shaun

      22. Jan, 2011

      Hey Jessica,

      Thanks for your opinion, I really value it 😉 I’m glad to hear you think that the outlook is hopeful. You pose a very interesting point about the 401(k), in Australia an employer has to contribute to an employees superannuation no matter what their employment status is. This would certainly make a significant difference over time!

      Reply to this comment

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