Younger Aussies feeling the pinch from soaring living costs


The Australian economy is facing a period of unprecedented change as inflation, interest rate hikes and the rising cost of living make their mark.

Finder's cost of living report released this week examines the effects of inflation on Australian consumers. It shows that it is younger generations - not older property owners - who are bearing the brunt of this economic upheaval.

Australia's consumer price index (CPI) reveals a concerning trend: a dramatic 7.8% increase in consumer costs from December 2021 to December 2022. This abrupt surge is a stark departure from the average annual increase of 2% over the last decade.

younger generations struggling more with cost of living increases according to new finder report

The primary non-housing expense categories contributing to this inflation include housing and energy (10.7%), food and non-alcoholic beverages (9.2%), recreational costs (9%), furnishings and furniture (8.4%) and transport (8%).

With inflation far exceeding the Reserve Bank of Australia's (RBA) target rate of 2-3%, the central bank has resorted to raising interest rates to curb consumer spending. Starting in May 2022, the RBA initiated a series of cash rate hikes, ultimately raising the rate from 0.10% to 3.60% by March 2023.

As a result, the average discounted home loan rate paid by owner-occupiers increased from 3.65% to 6.22% (with more increases to come). This rate change added an extra $12,000 to the annual cost of servicing a typical $600,000 mortgage, putting financial pressure on Australian homeowners.

These interest rate hikes have had a knock-on effect on rental costs, with house and unit rental prices rising by 10% or more in six of Australia's eight capital cities. This additional financial burden worsens the struggles faced by those unable to enter the housing market and those with mortgages alike.

The increasing cost of living is affecting 78% of Australians who have had to reduce their spending to cope, according to Finder's Consumer Sentiment Tracker (CST), an ongoing study of the Australian consumer.

A further 52% of Australians report experiencing financial stress as a result, with the situation affecting different demographics disproportionately. While only 29% of baby boomers say they are experiencing financial stress, this pressure increases as respondents get younger, with 70% of generation Z and 61% of generation Y experiencing pressure.

Younger Australians are more likely to feel pressured into looking for a second job, with 56% of generation Z and 45% of generation Y in this category vs only 7% of baby boomers. Younger Aussies are also more likely to report enjoying life less than they were 2 years ago due to financial pressures.

So what can be done about it? Interestingly, the volume of cash savings that Australians have on hand directly correlates with financial stress caused by the cost of living crisis. Baby boomers, who are the least affected by the crisis, report the highest volume of savings with an average of $51,300. Generation Z, the most heavily affected, reports the least at $13,300 on average.

Fortunately, savings accounts are the one financial product that has actually increased in value over the past year - and the increased competition in the sector has resulted in very attractive rates.

Finder's CST shows that the average Aussie has about $30,000 in savings and is saving around $600 per month. At the time of writing, the standard saving accounts from some of the big banks are paying 1.60% interest after temporary promotional periods. The highest ongoing rate on the market available to all Australian adults is 5.00% (ING). The average saver would make an extra $2662 in interest alone over two years by switching between these accounts.

For those who are feeling the pressure of our current inflationary environment, building a stable savings buffer against rising inflation is key to relieving pressure.

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Graham Cooke is the head of consumer research at Finder, where he runs the global insights team. One of Australia's leading personal finance experts, he regularly discusses the housing market on ABC News, Channel 7 and 9 News, Today and Sunrise. A seasoned data journalist, Graham edits Finder's RBA Cash Rate Survey, Insights blog and Consumer Sentiment Tracker. He has written articles for publications including Westpac Wire, Homely and Soho and judged financial awards for the Australian Financial Review and the Australian Mortgage Awards. You can follow him on Twitter at @gcooke42.