Cost of living forces investment rethink

Higher living costs have helped force more than four out of five Australians to change savings and investment goals in the past year, research shows.

Younger generations in particular are ditching money plans in droves to make ends meet, according a new study by financial advice and accounting group Findex.

This threatens to hit them with a double whammy from cost-of-living pain, today amid high inflation and in the future because their retirement nest egg will be smaller, Findex coCEO Tony Roussos says.

“It’s the Generation Zs and Generation Ys who are de-prioritising their savings goals,” Mr Roussos said.

“Generation Zs and Millennials have significant student debts. You can say we have always had them, but we haven’t, actually.

“People are doing it tough right now, but if you don’t look at the long-term impacts it could come back and bite you twice.”

Findex’s research found 81 per cent of Australians had changed their investment and savings goals in the last 12 months, but the proportion was 90 per cent among Generation Z and 87 per cent among Millennials.

It also found that property is people’s favourite investment for building wealth, ahead of superannuation. However, only 13 per cent of Generation Z view super as a key investment while 40 per cent of Baby Boomers prioritise it.

Older Australians are feeling financial pressure too. JBS Financial Strategists CEO Jenny Brown said she was seeing a definite impact of living costs on people spending their nest eggs.

“We have found more people are increasing the amount they are withdrawing from their super,” she said.

“And there are more questions around ‘will my money last’ and ‘do I have the right investment strategy?’.

Mr Brown said investing earlier in life had a large positive impact later, because of the benefits of compound interest.

She said someone who invested $2400 a year ($46 a week) from age 25 to 35 and nothing after that could end up with $363,850 by age 65, but someone who did not start until 35 and invested $2400 annually for 30 years would have only $282,755 – a shortfall of $81,096 despite investing three times as much for three times as long.

Ms Brown said diversification into growth assets such as shares and property was vital, but only at a level where people were comfortable. “It’s no point putting it all in growth assets if you are not going to sleep at night,” she said.

Findex’s Mr Roussos said the research found that 85 per cent of Australians diversified their investments, which allowed them to smooth out the ups and downs and protect their overall wealth.