Millennials, those from 18 and 34, have a different idea of life than older generations. They have snubbed the 9-to-5 and working for one employer for a long time, for a life where their own lifestyle and wealth are intertwined.
Lacking a long-term vision can be seen as only 24% of millennials in Australia own a home. This is according to the HSBC report ‘Beyond the Brick’, which surveyed 9,000 people between the ages of 19 and 36 in nine countries.
Yet, this group is investing in other forms of investments.
What is turning millennials off from buying property?
Simply put, millennials aren’t having problems with servicing the loan, but they can just not scrape together the deposit for the home loan. But the HSBC report also found the salaries of millennials were not enough. The report found that 61% of the people interviewed needed a higher salary to build up a deposit. To worsen the problem of not being able to save enough, millennials are faced with the risen cost of homes. For example, looking at the highest demand areas like Sydney and Melbourne, the average prices climbed by 18.9% to $805 000 and 15.9% to $605 000, respectively. And the speed at what prices are rising is making saving for a deposit even more difficult.
Where are millennials putting their money?
As home affordability seems a mission impossible, millennials are putting their money in high-risk investments, such as shares and online trading, according to news.com.au. For example, more than 50% of CommSec’s new customers are 35 or younger. That said – and ignoring risk – although liquidity can be better to free up investments, once they are freed up, there is the temptation to misuse the funds.
What about debt — and bad debt?
Millennials have a need for instant gratification and, as the biggest spending generation, they use their credit cards to buy luxury goods on debt. The problem is that most are unaware of bad credit, never mind comprehensive credit reporting. This means that most are unaware of what their bad credit will mean in the future when they finally want to buy a home.
What can millennials do to turn around the odds?
Some millennials are turning to the bank of Mum and Dad for help with the deposit for their first home. Now, parents can help their kids to put down a 20% deposit, or act as guarantors and make a guarantor loan. If the parents do that, the kids can avoid lenders' mortgage insurance and save some money.
But another strategy that is getting attention is "rentvesting". This is where they are renting where they want to live, but buy an investment property in a more affordable area.
Both of these strategies can put a young investor firmly on the property ladder.
In closing, what really needs to change?
There is a need for education and better understanding of the choices that millennials make.
This is echoed by one CEO, who said:
“There is a lack of financial literacy among the millennials, and they are unaware about how their bad credit will impact their chances once they apply for a home loan."
However, that cannot remain the excuse forever. True, better long-term wealth planning is needed, so also a bit more commitment from millennials to toughen it out a bit so they too can own a property, which could reward them in the end.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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