Meanwhile there’s another group of Australians, the ones who have paid off their house. Let’s call them the Tuscany set. These ones have assets to burn and many have cash at bank. That cash is starting to pay off handsomely. If you have $100,000 in a savings account with ING they’ll give you 5.5% per annum, which works out as $564 a year, or $21 a fortnight. Not bad compared to the last few years where you got a big fat zero.
The spending patterns of different Australians are driving the excess demand for goods and especially for services in a way that is causing inflation to rise. Visit a café and I promise you the people lingering in there will be grey of hair and happy as clams. Spending on eating out is at record highs and is growing faster than population growth as the next chart shows.
But there’s a clear age gap between the waiters and the patrons; the hands that carry the Uber eats bag to the door are usually a lot younger than the hands that gladly receive it.
Now, I don’t want to give the impression the baby boomers are personally greedy and selfish.
Many of these wealthier oldies have kids and are generous to a fault with them. And in many cases the younger generation stands to benefit from the wellbeing of those who are older. Whether it be by accessing the bank of mum and dad, getting some free childcare so they can do more work, or by one day inheriting the real estate assets their parents are sitting on.
Those young people (full disclosure: I count myself among them) may be in a cash squeeze but it is probably temporary. Across their lifetime they can expect to be a lot better off than any Aussies whose parents are overseas or those whose parents rent. I am thinking here especially of immigrants whose parents aren’t in an established suburb, and instead they’re overseas. They have no lifeline, in fact they are often the lifeline, remitting money to keep family afloat.
But domestic demand is being propped up by higher spending from the better-off demographics: they are not the ones being asked to suffer budgetary impacts when rates rise.
An important caveat though – older people do suffer more than young people if rates go up so much that house prices fall. Older generations have more wealth in housing assets and the so-called “wealth effect” of lower housing prices would be expected to curb their spending. Young people cheer for a house price correction but older people will be hit by it.
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