Everyone knows that different generations – from Baby Boomers to Gen Zers – have different financial habits, and face differing economic circumstances. But what can we learn from looking at the contrasting struggles that the different generations are together dealing with in 2023 that we can take into our investing practice in 2024?
That's the question that a recent cost of living report commissioned by Commonwealth Bank of Australia (ASX: CBA) looked at.
CommBank's recent iQ Cost of Living Insights Report certainly makes for some interesting reading for anyone interested in the generational divide in Australia.
Cost of living continues to bite
No matter your age, Australians all faced, and continue to face, cost of living challenges in 2023. Inflation has continued to run at levels previously not seen in more than a decade this year. Despite some recent improvements, inflation still came in at 5.4% over the 12 months to 30 September. And that has ensured that costs have been rising.
As a consequence, spending on essential goods and services over the three months to 30 September rose, while spending on discretionary items was flat.
Put another way, "Australians are increasing their expenditure on essentials such as insurance, medical costs and pharmacies, leaving less room to spend on discretionary categories like household goods and clothing".
To probably no young person's surprise, the generation hardest hit has been those aged 25-29. This age group was reportedly the only demographic that saw decreases in both essential and discretionary spending.
Interestingly, people aged 25-29, it was found, also shifted around their discretionary spending, prioritising 'experiences' over material goods.
Commonwealth Bank iQ's Wade Tubman, head of innovation and analytics, said this:
We're seeing consumers in their twenties cut back spending but still leave room to fund experiences. We've also seen younger people redirecting discretionary spending from things like clothes and homewares, to spend on cinemas and ticketed events such as concerts and sport.
However, the picture was very different for older Australians. For those aged 55 or older, the past quarter saw spending across both discretionary and essential goods and services rise sharply. And the effect was more pronounced the more older those analysed were.
For instance, the 55-59 age group spent 3.5% more last quarter than they did over the same quarter of 2022. But for those aged 75 or more, total spending grew 8.1%. That compares with a total spending drop of 5.1% for those aged 25-29.
For those aged 65 or above, the areas that saw the most spending growth were travel (up 17%), insurance (up 12%) and eating out (up 11%).
Investing for all ages in 2024?
Investing for younger Australians in 2024
No matter one's age, there are some interesting takeaways from this report that we can all implement to give our financial health a boost.
There's no doubt that younger Australians are doing it tough right now, as this report has overwhelmingly made clear.
But that doesn't mean younger Australians should give up on wealth building. For any Australian in the 25-29 age group, I think a focus on saving and investing what you can is of paramount importance. The younger you are, the more years you have to harness the power of compounding.
So even if you manage to restructure your weekly budget to find an extra $50 to spare and invest, you will be doing yourself a huge favour down the road. Some tips on that front might include consolidating your streaming services so that you are only paying for the ones you are using right now, shopping around when it comes to utilities like electricity and gas, and maybe driving or catching rideshares less and using public transport more.
Older Australians
Let's talk about older Australians, or even those approaching retirement. It's clear that having a robust stream of income is vital to fund rising costs (medical costs for instance). As well as making sure you enjoy your golden years as much as possible with luxuries like travel.
As such, maintaining a reliable stream of income whilst protecting your capital should probably be your primary goal. With that in mind, I would recommend spreading your capital out over different asset classes that all prioritise reliable income.
Term deposits are a great bet for safe income these days, thanks to high interest rates. But I wouldn't neglect high-quality ASX dividend shares either. Companies like Telstra Group Ltd (ASX: TLS), Coles Group Ltd (ASX: COL) and Transurban Group (ASX: TCL) all have highly defensive earnings bases, and thus can arguably fund reliable dividend income going forward.
You can also look to passive investments like dividend-focused exchange-traded funds (ETFs) for a diversification boost too.
