Sand­wich gen­er­a­tion: Su­san Hely Avoid the trap

The de­mands of age­ing par­ents and adult chil­dren are tak­ing a heavy toll on the re­tire­ment plans of the 'sand­wich gen­er­a­tion'

Money Magazine Australia - - CONTENTS - STORY SU­SAN HELY

Most peo­ple don’t like to talk about it. But it is one of the big­gest fi­nan­cial dilem­mas fac­ing the gen­er­a­tion aged in their 40s to 60s and it is blowing a big hole in their sav­ings and fu­ture plans.

How do they help set up their chil­dren while sup­port­ing their age­ing par­ents, who are liv­ing longer and strug­gling fi­nan­cially? It is a tough fi­nan­cial bal­anc­ing act. Mid­dle-aged peo­ple are be­ing squeezed on both sides, which is why they are called the sand­wich gen­er­a­tion.

“The sand­wich gen­er­a­tion is hav­ing it tough. Their best-laid plans are be­ing torn apart,” says Damian Hill, CEO of REST, a su­per­an­nu­a­tion fund that com­mis­sioned a sur­vey of the in­ter­gen­er­a­tional pres­sures fac­ing Aus­tralians.

Presently some $500 bil­lion is mov­ing up and down the fam­ily tree, ac­cord­ing to REST’s study, with $300 bil­lion of it from older work­ers. Most of the money (72%) goes to adult chil­dren to help with ed­u­ca­tion costs ($109 bil­lion) as more young peo­ple are at­tend­ing univer­sity than ever be­fore and par­ents want their kids to have the op­por­tu­nity that it brings. A fur­ther $93 bil­lion is given to the kids for ev­ery­day ex­penses while $68 bil­lion is handed out in home de­posits.

But if that wasn’t enough, they are also meet­ing the needs of their par­ents. REST found that 14% of peo­ple are help­ing their par­ents pay their bills, par­tic­u­larly their med­i­cal bills, as they age. He says a gen­er­a­tion ago life ex­pectancy was sev­eral years less than it is now.

“Then you didn’t hear about a hip or a knee re­place­ment. Now it is com­mon," says Hill. "One in seven older Aus­tralians are pro­vid­ing health sup­port to their par­ents, pay­ing their gen­eral med­i­cal bills, par­tic­u­larly if they suf­fer a se­ri­ous ill­ness to help pay on­go­ing costs.”

But pro­vid­ing fi­nan­cial sup­port for kids and par­ents puts their own fi­nan­cial well­be­ing at risk. As they edge to­wards re­tire­ment, the knock-on ef­fect means that some 46% of pre-re­tirees are car­ry­ing debts and 20% will re­tire with a mort­gage, ac­cord­ing to REST.

Their gen­eros­ity now will have a fu­ture im­pact on their fu­ture life­style. REST found that one in three (35%) re­tirees are liv­ing with what they de­scribe as a "fru­gal" re­tire­ment, says Hill.

“It’s clear that many Aus­tralians aren’t liv­ing the re­tire­ment that they wanted,” he says. But it is im­por­tant not to sac­ri­fice their re­tire­ment. Cer­tainly pre-re­tirees need to make their own fi­nan­cial needs a top pri­or­ity. They need to put in place care­ful bud­get­ing and spend­ing, he says.

The sand­wich gen­er­a­tion needs to un­der­stand the re­al­i­ties of life and do a bit more plan­ning and face up to the fi­nan­cial cost of re­tire­ment, says Hill. One strat­egy is to con­trib­ute more to su­per and con­sol­i­date ac­counts.

But it is no won­der that par­ents are help­ing their young adult chil­dren. Ed­u­ca­tion costs are ris­ing, home own­er­ship is in­creas­ingly out of reach for mil­len­ni­als while wage growth of barely 2% means that in­comes aren’t keep­ing up with the cost of liv­ing. Fu­ture gen­er­a­tions of young peo­ple are, for the first time, set to be worse off than their par­ents, ac­cord­ing to a num­ber of re­ports.

The big ex­pense is ed­u­ca­tion, as the younger gen­er­a­tion is the most ed­u­cated yet, says Hill. “Ev­ery gen­er­a­tion wants their kids to have more op­por­tu­nity. They are com­ing to the party to make sure that they get ahead.”

The fu­ture of work is less sta­ble and se­cure for young adults than it was for their par­ents. And there has been a drop in full­time em­ploy­ment.

Hous­ing cri­sis

Not sur­pris­ingly, nine in 10 par­ents (94%) are wor­ried about hous­ing af­ford­abil­ity and how it will af­fect the fi­nan­cial fu­ture of their chil­dren, ac­cord­ing to the re­port The Fu­ture Af­ford­abil­ity: Find­ing Free­dom from the Bank of Mum and Dad, con­ducted by Gal­axy for the dig­i­tal in­vest­ment ad­viser Stockspot. It found this trend across all ages, lo­ca­tions and in­comes. Mums (63%) are more likely to be "very con­cerned" than dads (51%).

Most (74%) fear that their chil­dren will live at home well into adult­hood to be­come “gen­er­a­tion never leave home”. And this means that fu­ture boyfriends, girl­friends or part­ners will move into the fam­ily home per­ma­nently, which 55% of par­ents are not happy about.

“Par­ents are bom­barded ev­ery day with news of im­pos­si­ble-to-af­ford houses and the ris­ing cost of liv­ing,” says Chris Brycki, Stockspot CEO and founder. “Younger par­ents, those aged 18 to 34, are the most wor­ried. They are al­ready vic­tim to the hous­ing cri­sis and low wage growth and now they’re see­ing the cost of ed­u­ca­tion go up.

"Some 67% of par­ents be­lieve that they will have to de­lay their own plans and a fur­ther 67% ex­pect that they will have to pro­vide money to help them buy their first home.”

Smart sav­ing

But while par­ents are squeezed in both di­rec­tions, many are not sure if they’ll have the funds to help their adult chil­dren. “I be­lieve fu­ture gen­er­a­tions won’t be able to rely so strongly on the Bank of Mum and Dad,” says Brycki.

He says it is com­mon for par­ents to open a bank ac­count for their kids, but the sur­vey found that they don’t start an in­vest­ment ac­count. Most (68%) are most likely to put money in a bank ac­count if they were to start a sav­ings strat­egy for their chil­dren. How­ever, rel­a­tively few would put money into a share in­vest­ment port­fo­lio (13%), be­cause they lack knowl­edge about in­vest­ing or be­lieve it to be too risky or un­af­ford­able.

“Sav­ing early and fre­quently is the sin­gle most ef­fec­tive ac­tion a par­ent can take to help chil­dren get a fi­nan­cial head­start,” says Brycki.

“Putting money in a bank ac­count is cer­tainly a wise thing to do but par­ents who avoid in­vest­ing miss out on the ben­e­fits of com­pound re­turns. An in­vest­ment of $2000 in a high-growth port­fo­lio and reg­u­lar top­ups of $100 a month at an av­er­age af­ter-tax re­turn of 7% per year would re­sult in $60,000 in 20 years. Com­pared with that, to­day’s av­er­age bank in­ter­est rate of less than 2% would achieve only about $32,500.

“Ed­u­ca­tion is vi­tally im­por­tant. Too many par­ents think they ‘don’t get it’ and don’t teach their chil­dren about the value of com­pound re­turns. Or they think it’s too risky be­cause they had a bad ex­pe­ri­ence stock pick­ing.

“Dig­i­tal in­vest­ment ser­vices can now spread in­vest­ments across thou­sands of com­pa­nies from Aus­tralia and around the world to re­duce risk. It’s never too early or too late to start sav­ing and in­vest­ing. Tech­nol­ogy has made sav­ing and in­vest­ing eas­ier than at any other point in his­tory. The op­por­tu­nity is there, par­ents just need to take it”.

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