What you own is now more important than what you earn

Which is more important – what you earn or what you own?

Historically, it was always what you earn, with that being the basis for everything from how much you can borrow to where you can live and what sort of lifestyle you can afford.

In the era of the fearless borrower too, what you earned could also govern what you owned with flash cars and lifestyles sometimes bought on credit to give the illusion of ownership.

However, the shock interruption of the Covid lockdown period seems to have led to a situation in which there has been a big change among younger people to focussing on what they own rather than what they earn.

Covid created new trends

That is probably a logical situation given that during Covid many of us were stuck in a period of great uncertainty with earned income becoming less certain and your everyday surroundings staring you in the face every day as you surveyed the limitations of your “working from home” kingdom.

It is one of the reasons why a recent survey of 2011 Australian investors by investment platform Stake, found that 56% of those aged 25-34 believe that what you own is more important than what you earn – the highest percentage of any generation.

You would expect that percentage to drop among older age groups but perhaps another factor here is that those aged 25-34 are no longer automatically focussed on buying houses.

Radically different environment faces younger generations compared to Boomers

For Baby Boomers, there were strong logical and investment reasons for buying a house when they were in this age group but due to affordability worsening dramatically, buying a house or unit to live in has now become something only a minority will be contemplating.

That, in turn, has prompted movements such as FIRE (Financially independent, retire early) as newer generations contemplate their financial future alternatives without the forced savings of an early property purchase.

The permutations have been endless – some are rent-vesting (buying a rental property and renting where they want to live), starting to invest systematically, often overseas or locally through diversified Exchange Traded Funds and pushing extra income into super.

Some may even have given up, pinning their hopes on a possible inheritance down the track and living hand to mouth until that day comes.

We will all be working longer

Interestingly, the most uniform belief across the generations is that people will be forced to work until they are past 65 when they retire, with a solid 80% believing that.

Showing the change in investment priorities and opportunities, 59% of the 18-34 cohort in Australia see the share market as the most accessible way to build wealth, compared to just 11% who said property.

Stake chief executive, Jon Howie, said it was apparent that young people are feeling the cost-of-living crisis but also that they are taking responsibility for financial back-up plans.

Wage growth versus property a worry

“It’s really hard for young people to control wages, and there’s a broad societal question around wage growth versus the growth seen in the property market,” said Mr Howie.

“But young people are thinking about how they prioritise entertainment, travel and eating out, versus their financial futures.”

That probably paints a very different picture than the sort of “avocado toast slackers” narrative that is sometimes pointed to, at times by “entitled” Boomers.

According to Mr Howie, the younger generations are future-focused despite cost-of-living pressures and are making sacrifices to continue growing their wealth.

However, some of the sacrifices being made are worrying, with 23% of investors across Australia and New Zealand aged 18-34 putting off having a family, 18% delaying starting a business and 20% putting off further education and training for financial reasons.

Children will have to wait

“We’re really conscious of the feedback we get in these surveys around people delaying starting a family and investing in their education. We have to be mindful of those responses and thoughtful about how we reduce that,” said Mr Howie.

“We need to be really cautious about allowing those trends to go too far, and ultimately find ways to enable everyone to have easy, low-cost access to build better financial futures.”

Unsurprisingly given the cost-of-living crisis, 67% of those surveyed believe they need an annual income of at least $101,000 to achieve a comfortable standard of living, up from 57% last year.

An amazing 49% believe you need at least an income of $121,000 in 2024, up from just 40% last year.

Meanwhile, 60% think the intergenerational wealth gap is holding young people back.