The transfer of wealth between generations is a pressing issue in Australia, with an estimated $3.5 trillion expected to be passed down from those aged 60 and over in the next 20 years. This transfer, nearly the size of the current superannuation system, presents both opportunities and challenges for older and younger Australians alike. Understanding and navigating these complexities requires open communication and strategic financial planning.
The Challenges for Australians Under 40
Australians under 40 face a multitude of financial challenges. Rising housing costs, ongoing mortgage repayments, family planning, and career progression dominate their financial landscape. These years, while marked by significant milestones such as buying a first home, having children, and advancing careers, often lack crucial conversations about future wealth distribution with ageing parents.
AMP’s recent research highlights the dynamics within families regarding intergenerational wealth. Many under 40s strive for financial independence, avoiding reliance on the “Bank of Mum and Dad,” despite concerns over housing affordability impacting their long-term wealth. Key findings include:
- 4 in 5 under 40s have not asked their parents for financial support.
- 3 in 5 have not discussed wealth transfer with their parents.
- Only 1 in 5 rely on potential inheritance for future financial security.
- Half of those surveyed anticipate needing to support their parents financially as they age.
In this economic environment, intergenerational wealth discussions are critical. Younger Australians exhibit a lack of confidence in achieving financial independence, compounded by the belief that their generation faces greater financial challenges than their parents. This sentiment is particularly strong among those under 29, with many believing that property ownership, crucial for long-term wealth and retirement security, is increasingly out of reach.
Conflicting Priorities for Older Australians
For older Australians, retirement is a time to enjoy the fruits of their labor and consider how to pass on their wealth to the next generation. However, retirees face competing financial goals: maintaining their lifestyle, preserving capital, supporting children, and planning for aged care. Many are burdened by the fear of running out of money, or “FORO,” which affects their quality of life and their willingness to discuss wealth transfer with their children.
Research shows that:
- 4 in 5 Australians aged 65 and over believe their children face tougher financial challenges now compared to their own experiences.
- 3 in 4 think it’s important to pass wealth onto their children.
- Many lack financial confidence in retirement, with 3 in 5 more concerned about having enough money than they were a decade ago.
- Close to 3 in 5 anticipate compromising their quality of life in retirement.
- Despite the desire to help, 4 in 5 are not willing to downsize their homes to provide funds for their children, and 7 in 10 are unlikely to adjust their lifestyles for wealth transfer purposes.
The Role of Financial Advice
Financial advice is pivotal in addressing the intergenerational wealth challenge. Advisers can help both older and younger Australians navigate these complex issues with tailored strategies that suit their unique circumstances.
For younger Australians, advisers can develop successful wealth creation and protection strategies, considering their entire financial situation, including intergenerational wealth dynamics. They can facilitate discussions with parents about wealth transfer and provide insights into the implications of various decisions.
For older Australians, advisers can boost financial confidence by clarifying options such as gifting assets or using home equity. This helps ensure a secure retirement while also supporting children financially. Solutions that provide income options in retirement can alleviate fears of running out of money, enabling retirees to enjoy their retirement years without compromising on their lifestyle or financial support for their children.
Crest advisers are prepared to assist you in developing the best strategy for your needs, ensuring that your financial goals are met while supporting your family across generations.
