Young Aussies have done it tough during Covid-19, but they are proving remarkably resilient: although they’ve borne the brunt of job losses and are more likely to have taken a pay cut, they are apparently determined to make the most of the situation.
They’ve become focused on setting themselves up for future success, with new research by Westpac finding two-thirds are now more motivated to save for their first home.
Overall, the survey of 18 to 29-year-olds suggests that the pandemic has made younger Australians sharpen their focus on financial security.
And there’s been welcome news on this front with the government’s new JobTrainer package, which will create 340,000 training places in high demand industries like healthcare, manufacturing and trade, and provide more subsidies for apprentices.
But what are the future fixes young people can apply TODAY that could see them emerge stronger than older generations from the coronavirus chaos?
Strategy 1: Get saving and investing – With nearly half (49 per cent) of survey respondents saying they are planning to save more than they did before Covid-19, and 85 per cent choosing to either cut back on spending or hold off on large purchases to protect savings, young people need to realise their huge advantage: time.
Just $9 a day invested at 8 per cent from age 25 will make you a millionaire at retirement at 65. For someone who is already 35, that figure leaps to $22 a day. But wait until you’re 45 and it’s an eek-inducing $55 a day. That’s $1673 a month.
For money you need in the shorter term and therefore can’t afford to risk on the share market, Westpac’s giving young people a leg-up for saving into a bank… paying a much higher interest rate on its Westpac Life account than competitor accounts.
You’ll earn 3 per cent, if you’re 18 to 29 years old, in the months you make a deposit and your balance also grows. Where you don’t meet these conditions, the so-called base rate is also a decent 2.4 per cent.
Strategy 2: Climb onto the property ladder cheaper – If like others, you are more motivated to save for your first home, the good news is you don’t have to save as much… even if property prices don’t fall by much.
Generally, a family home with a property value of $600,000 means a buyer would also be looking at a one-off payment of more than $6000 for the cost of lenders mortgage insurance if they had less than a 20 per cent deposit. This is like shelling out money for nothing.
However, the government’s first home loan deposit scheme for lower income earners lets you buy if you put down just 5 per cent, without paying lenders’ mortgage insurance... the government guarantees you for the 15 per cent to make your ‘deposit’ up to 20 per cent.
But that means a huge loan of 95 per cent and far less of a price buffer if prices unfortunately fall after you buy.
St.George is also helping first home buyers get a foot in the door sooner, reducing lenders’ mortgage insurance to just $1 for eligible first home buyers with a deposit as low as 15 per cent, instead of the traditional 20 per cent.
Strategy 3: If you’ve been on a debt binge, take the interest hangover cure for this debt – It sounds crazy but there are legitimate products that let you transfer your credit card balance to a new institution and pay absolutely no interest on it for a time, rather than the average 17 per cent interest rate. This gives you a window of opportunity to clear it once and for all.
The longest 0 per cent balance transfer right now is 26 months with Citi's Rewards card.
Then, to get debt free, you simply divide your outstanding balance by 26 and move heaven and earth to repay that amount each and every month.
Strategy 4: Get health cover if you’re a high earner or 31 or over – In a quirk of the system designed to force you to get cover, if you don’t have health cover, you essentially pay for it anyway in the form of a tax penalty if you earn over $90k as a single or $180k as a couple.
So you may as well get covered.
If you wait until you’re 31, you’ll pay more forever too under what’s called lifetime loading… 2 per cent extra for every year you delay.
To avoid this, you need to take out at least basic hospital cover by 1 July following your 31st birthday, which is called your base day.
Strategy 5: DON’T raid your super – This is like stealing from future you. What’s more, modelling by Industry Super Australia shows what you take today will cost a 20-year-old six times as much in retirement. For a 30-year-old, it’s five times as much.
In other words, if they withdrew the $20,000 allowed from super under hardship provisions, it would set a 20-year-old back $120,000 and a 30-year-old, $100,000.
Instead use these unsettling times as motivation to make savvy money moves… and a huge positive difference to the rest of your life.