After decades of saving, older Australians are spending up. But the wave of cash is causing headaches for the inflation-fighting treasurer and RBA. Can the good times last?
Canberra art dealer Kacy Grainger is in no doubt the market for original paintings and sculptures has shifted since the middle of last year.
“We realised that most of our sales were of larger, more expensive works that were going to self-funded retirees,” Grainger tells. “It’s the boomers that are spending, and our younger clientele have really dropped off.” The diverging experience of young versus old shows no signs of slowing down, either, especially for those living off fixed-interest assets like bonds or term deposits, which are generating a sharp rise in income thanks to elevated yields – an under-appreciated consequence of the global interest rate hiking cycle. And the more central banks hike, the better it gets for asset rich, heavily “financialised” older households.
“The story in all of this is that, through the various levers that have been pulled to get inflation down, they’ve landed hardest on those with mortgages and on renters. Labor tried to tackle intergenerational inequity in the 2019 election and ended up triggering the wrath of older voters when it promised to introduce changes to franking credits, a key reason Bill Shorten lost to Scott Morrison.
“It’s something we never thought about at the start of the hiking and a lot of people missed it,” says Nic Guesnon, an economist at UBS. “Everyone focuses on increases in mortgage repayments, but not everyone looks at net interest paid.” Those older households are also far wealthier than ever before. Across the age groups, the ratio of wealth to income is about 10. But for the 65-and-old group, that figure exceeds 20 and rising.
Little wonder retirees are still in a mood to spend big, even as those with mortgages suffer. It’s a significant reversal from just a few years ago when ultra-low interest rates switched the dynamic.Michele Bullock, governor of the Reserve Bank of Australia will announce the next rates call on Tuesday.
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