Economic Issues Affecting Young Aussies During COVID-19
Being a young person comes with plenty of opportunities to learn and try new things, however, young Aussies have their fair share of challenges, especially in 2020. With uncertain job prospects for graduates, the prospect of online education for the near future, travel restrictions and financial stresses, COVID-19 has only added to the overall pressure for young Aussies.
One way to look at this in further detail is off the back of ME Bank’s financial comfort research. ME bi-annually surveys 1,500 Australian households on their level of financial comfort, across 11 key Index drivers. These key drivers include household comfort with income, living expenses, short-term cash savings, debt, long-term investments, net wealth, retirement savings and ability to handle a financial emergency.
I spoke to the General Manager of Personal Banking at ME, Claudio Mazzarella, to get his thoughts on the key economic issues in Australia affecting young Aussies at the moment.
Based on the research, what are some of the key economic issues in Australia that are directly affecting young Aussies?
The immediate economic issue is the impact of COVID-19 restrictions on casual and part-time work, particularly in retail, hospitality and tourism. As a result, many young people have been made redundant or are working with reduced hours. Despite the negative impact of the COVID-19 pandemic, government support has had a significant cushioning effect to the financial comfort of young Aussies.
ME’s Latest Household Financial Comfort Report surprisingly showed a 5% jump in financial comfort for Gen Y, in the past six months to June 2020, to reach an all-time Index high of 6.04. Gen Z also increased by 4% to 5.76. However, a potential savings cliff is approaching once government support begins to taper off. Many eyes will be on what governments do in the final months of 2020 and into next year.
What are some of your tips for dealing with and preparing yourself to deal with unexpected financial expenses?
To prepare for unexpected financial expenses, one of the best actions young Australians can take is to create a ‘rainy day’ savings fund. As a guide, aiming to put aside three to six months of average living expenses will provide you with a good buffer in the event of a financial emergency, such as unexpected job loss. Worryingly, ME’s latest Report showed that only 25% of households could maintain their lifestyle for one month and 21% have less than $1,000 in savings.
Cutting back on spending or putting more income aside each payday to build your rainy day savings can be difficult at times, but it’s well worth doing not only to improve any immediate financial anxiety but long-term financial resilience. Additional funds may be needed right now, however, withdrawing superannuation at such an early age can have a profound effect long-term.
Due to compounding interest, withdrawing $10,000 offer from your superannuation can result in a loss of hundreds of thousands when the average 18–24-year-old retires down the track. Gen Z does have the luxury of time on their side to reinvest over the coming years, but they need to be smart and make additional contributions where possible.
If you’re keen to start improving your finances in 2020, check out the How To Money podcast to get started!
Kate — HTM Founder & Editor
If you’re interested in learning more about money and personal finance, catch us on the How To Money podcast which you can find on iTunes, Spotify or via our online web-player.
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