Property? Shares? Round-the-world holiday? Where do you put your disposable income if you’re under 35?
For some millennials, it’s all about the ‘now’. You pay your rent, your bills – and whatever’s left over goes into the enjoyable stuff. But for others, building wealth for the future – and wondering whether you’ll ever achieve the same standard of living as your parents - is very front of mind. Millennials’ attitudes to investing are as varied as the individuals who make up this so-called ‘Generation Me’.
Property, property, property
In some parts of Australia, property is all people ever talk about: what your house is worth, what someone else got for theirs, how much house prices have risen this year.
But what if you’re in your 20s or early 30s?
As business manager of a cotton farm, Craig has the advantage of living outside of a big city which means property prices, and the cost of living, are lower. At 30 he owns two houses, the first of which he bought to live in. “I didn’t want to pay rent, and then I was thinking, what I’m paying in rent can be paid in interest.”
Then he rented out the first property so he could use it as an offset for tax, using the equity from that to buy his second place. “I’m trying to build assets as I go,” says Craig. But it does mean he and his partner are servicing two good-sized mortgages, which leaves them stretched, financially. “It’s probably not the safest way to be but that’s where I am at the moment,” he says.
At 25, BT graduate York has also purchased two properties – both off the plan. “Originally I bought an apartment for myself, to live in,” says York. “Then my girlfriend wanted to buy a property so we went out and bought a property together. So we plan to live in the first one, then move to the second one when that’s done.”
Not all of York’s friends are at that point yet. “I have a few friends that have their own properties as well. But at the same time I have a lot of friends who are happy to rent. For me, I wanted to get in early. If I wanted to retire at 50 I’d have to start everything else earlier,” he says. York got his deposits together by saving hard and getting a bit of help from his parents.
Looking further afield
While many millennials have their eye on property, the cities they live in are just too expensive. 26-year-old marketing manager Natalie is looking elsewhere. “The Sydney housing market is a really interesting one at the moment, so maybe I’ll buy back in Adelaide or Brisbane and have that investment property as a backup and continue renting in Sydney.”
Comparing current house prices to the equivalent in her parents’ day is a not a fun exercise for Natalie. “My dad bought his first house for like $30,000 or something ridiculous,” she says.
The solution for 32-year-old sommelier Jodie is buying in the country - eventually. “I think I would probably start with an investment property. I guess it depends on the area – if I could find something that was positively geared, I would definitely do that, and then perhaps try to build a portfolio, but certainly not in Sydney. I’ve heard in rural areas there's a high demand for rental properties, so you’re going to be a little ahead there.”
As a Westpac senior financial planner, Diana Saad talks to a lot of under 35s about property. “I think there’s a bit of a struggle going on with millennials and the property market, especially in Sydney where you’ve got to settle for a suburb outside your preferred area and buy a small place and it’s still costing an arm and a leg. People are concerned about it, especially younger people because they don’t have the same level of income as someone in their 40s and 50s.”
That’s when investing outside of property starts to sound like an attractive option. “They might rent and find they still have surplus income, so they might invest in something that’s a bit more divisible like a share portfolio or managed funds,” Diana says.
Next stop share market
23-year-old Sam grew up in Brisbane but moved to Sydney recently to join BT’s grad program. “I had a First Home Saver Account back when that that scheme was still running,” says Sam. “So I invested quite a bit in that with the plan of using that to buy a house. But since I’ve been down in Sydney the scheme has been scrapped, so I’ve closed that account down... It’s not unreachable, but I don’t see myself investing in property for the foreseeable future.”
Instead Sam has moved the money into his share portfolio. “I encourage a lot of my friends and family to look into shares,’ he says, “though I understand that a lot of people aren’t exposed to that world or way of thinking as much as I have been, studying it and working in the industry.”
Diana Saad believes that fear is one of the main barriers stopping people from investing in the share market. “Not understanding it, not having the time, maybe having the misconception that you have to have a lot of money to start out. Fear of making the wrong choice, fear of market risk… they’re all factors,” she says.
Sam agrees. “I think it’s the fear of the unknown. People get a lot of their notions of share trading and investing from the media. Also the GFC was huge for people my age… seeing something like that happen and not understanding how it happened or why it happened to the people that it happened to – I think that definitely plays into people’s fear about investing in other assets.”
Matt is a good example. He’s 30 and works as an industrial relations adviser. He’s already bought a house, but when it comes to investing outside of property, he’s wary. “I’d have no idea how to invest in shares... It’s something I’d like to do – probably should do - but I’d have to find out more about it. I’ve probably been a bit lazy with it. I’m comfortable at this stage so I haven’t even considered making more money.”
Another barrier to investing in shares can be a lack of financial literacy, where someone hasn’t had a lot of financial education in school, or at home. “If you’ve grown up in an environment where there’s never been a focus on finances you just don’t think about it,” says Diana Saad. “What you think about is can I pay my rent, can I pay my bills and that’s as far as it goes. As a result some people don’t have a financial mentality, it doesn’t cross their minds at all.”
There are exceptions of course. 30-year-old Jason, a management consultant in banking and finance, is confident in both property and share investing, despite not having had any financial education in school (“not real world education anyway”) and having parents who were not financially savvy at all. His confidence has come from his own studies and research.
But even he’s not without concerns. “I worry that a bad decision could leave me with nothing,” Jason says. “I made one once which cost me a few hundred thousand dollars. It took a while to come out the other end and face reality but I learned a valuable lesson from it. The most expensive lesson to date.”
Getting the full picture
32-year-old marketing manager and mother of two Deepa, says what stops her investing in a full share portfolio is not understanding the overall picture. “I need to know what it’s all going towards so that everything else makes sense. So if I’m investing here, if I’m moving house, or selling this house, or getting out of property or moving into shares, it’s because it’s part of the plan... I want to be able to sit down with someone who’ll give me that kind of advice so I know where I should be putting my money.”
Diana Saad agrees. As she says, “When you look at the bigger picture and see how everything works together it’s likely to be a much better outcome for the client.”
A good financial planner can help you get an understanding of the overall picture, and help overcome fears about all kinds of investing.
This information is current as at 13/10/2015.
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.
Diana Saad is a representative of Westpac Banking Corporation ABN 33 007 457 141 AFSL & ACL 233714.
For illustrative purposes only. Based on a real life examples.