2023 saw Australians from all walks of life faced an uphill battle against the ever-rising cost of living. The relentless surge in inflation, peaking at levels unseen in over a decade, left no one untouched. By September 30, inflation had reached a daunting 5.4%, leaving little room for financial complacency. This economic reality led to a surge in spending on essential items like insurance, medical expenses, and pharmaceuticals, while discretionary spending remained stagnant. These divergent spending patterns shed light on the profound generational differences in financial habits.
The Commonwealth Bank of Australia recently delved into these generational disparities through its iQ Cost of Living Insights Report, offering valuable insights into the financial challenges experienced by various age groups in 2023.
Impacts on Younger Australians
Unsurprisingly, young Australians aged 25-29 bore the brunt of these financial challenges. This demographic stood alone in witnessing declines in both essential and discretionary spending. What sets them apart, however, is their shift in priorities, as they opted to prioritise ‘experiences’ over material possessions. These young adults redirected their discretionary spending from items like clothing and homewares to memorable experiences like cinema outings and ticketed events, such as concerts and sports.
Contrasting Circumstances for Older Australians
In stark contrast, older Australians, particularly those aged 55 and above, experienced a substantial increase in spending on both essential and discretionary goods and services over the past quarter. The older the age group, the more pronounced the spending growth. For instance, the 55-59 age group increased their spending by 3.5% compared to the same period in 2022, while those aged 75 or above witnessed an impressive 8.1% surge in total spending. In contrast, those aged 25-29 saw a 5.1% decline in total spending.
Among the spending categories that experienced the most growth for individuals aged 65 and above were travel (up 17%), insurance (up 12%), and dining out (up 11%).
Investment Insights for 2024
Regardless of age, there are valuable lessons to be gleaned from these generational spending patterns as we step into 2024.
Investing Strategies for Younger Australians:
For those in the 25-29 age group, the significance of saving and investing cannot be overstated. With more time on their side, compounding can yield significant benefits for their financial well-being. Even allocating a modest amount from their weekly budget towards investments can prove advantageous in the long run.
Investing Strategies for Older Australians:
Older Australians, particularly those nearing retirement, should place a premium on securing a dependable income stream to cover escalating expenses, especially medical costs. Diversifying investments across various asset classes that emphasise consistent income is crucial. Term deposits, offering attractive interest rates, present a secure income option. Additionally, high-quality ASX dividend shares and dividend-focused exchange-traded funds (ETFs) provide diversification and a reliable income stream.
The generational disparities in spending habits witnessed in 2023 offer profound insights for investors in 2024. Younger Australians should concentrate on saving and investing, while older individuals should strive to secure a dependable income stream while safeguarding their capital.
If you seek personalised financial guidance and investment strategies tailored to your specific financial aspirations, our team is here to assist you. Reach out today to schedule a consultation with our experienced advisors and embark on your journey towards a more secure financial future.