WHY GEN Y NEEDS A FINANCIAL ‘PLAN B’
Generation Y are often given a hard time, labeled as spoilt and demanding but they may be facing a much harder financial reality than their parents did. AMP.NATSEM Income and Wealth report has shown that first home buyers are facing higher levels of housing stress than any other group, with 30 per cent paying more than 30 per cent of their after-tax income on housing costs. The report titled The Great Australian Dream – Just a Dream?, which measures housing affordability trends for Australia and its largest 25 cities, found that over the past decade there has been a 147 per cent increase in the cost of housing yet only a 57 per cent rise in income levels. The report also found that over the past ten years the average home loan for first home buyers has more than doubled to $280,000 and the age of first home buyers is creeping up too. Back in 2001, 39 per cent of first home buyers were under 30, today that figure is only 37 per cent. Combine exorbitant housing prices with the fact that the cost of everyday living in Australia is among the most expensive worldwide, and it soon becomes clear that the outlook is tough for young people. Generation Y needs to consider what course will work best for them in helping achieve their financial goals in the face of a continuing uphill battle to enter or stay afloat in the property market. So, what can Gen Yers do to get on top of their finances? Some options to consider include: Direct shares Young people (or can I say…kids these days) could choose to invest in shares directly. The value of shares depends on the management and performance of the individual company. To be successful with direct shares, individuals need both the time and ability to study the markets closely. Shares can be purchased through a stockbroker or by the individual online, though it pays to seek professional financial advice that takes into account the individual’s short, medium and long term goals. It is also important to consider how comfortable a person is with risk before making any investment decision. Managed funds For people who don’t have the ability and time to study share markets, managed funds may be another way to go. In a managed fund, the individual’s money is pooled with the money from other investors and then invested by a fund manager for a fee.
Fund managers vary widely and professional financial planners can advise which fund would best suit the individual and their goals. Pooling money with other investors also provides the means to invest across a broad range of companies or assets and this diversification lowers risk and provides economies of scale. Bonds Although the management fees may be higher than other types of investments, bonds are a good investment option for some people. Simply put, bonds are ways for companies and governments to raise more money than could be provided by the bank. Like managed funds, bonds are managed by a professional investment manager. However, with bonds the investor knows the exact amount of cash they’ll get back if they hold onto the bonds until they reach maturity. High interest bank accounts If home ownership is a valued dream, then setting this as a financial goal and putting in place a savings plan is a great starting point. With that in mind it’s hard to go past a high interest savings account. Online savings accounts are on offer by most banking institutions and credit unions, and term deposits also offer competitive interest rates. With so many great deals around and consumer awareness at its peak, banking institutions have come up with enticing deals to stay competitive. It’s never too early to start saving for a first home - even if it’s going to take longer than it did for previous generations. Pool your funds Buying property with friends or family enables several parties to enter the property market when it may be unaffordable for each to do it alone. However, it is crucial to communicate openly and honestly about each party’s expectations. It is also important to purchase as tenants in common rather than joint tenants, this ensures that in the event of one investor’s death their half of the property becomes an estate asset rather than reverting automatically to the other part owner. Legal advice should also be sought on what types of contracts or agreements may be suitable if the relationship sours or each person wants to move in a different direction. Education Don’t underestimate the value of investing in education. An extra qualification can reap rewards with a higher salary and career advancement down the track. Above all, the best thing Generation Y can do is to seek advice while they are young to help identify wants and needs and put in place a realistic plan to achieve their dreams. Whilst hindsight is a good teacher, it takes a leap of faith to start saving and investing early in life with the belief that it will pay off down the track.
INFO: James Smith and Hammock Financial Group Pty Ltd ABN 88 150 832 232 are Authorised Representatives of AMP Financial Planning Pty Limited . Any advice in this publication does not take account of your personal circumstances. Before relying on it to make a decision, you should consider how it applies to your overall circumstances or get personal advice.
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Generation Y needs to to consider what will work best for them in helping achieve their financial goals for a richer future.