With the cash rate rising to 0.85 per cent, one age group of Aussies are facing an uphill battle
Aussies in their late 20s and 30s will feel the sting of today’s whopping interest rate hike the most, according to experts.
PropTrack economist Paul Hurst told news.com.au that young adults who had in the past few years taken on more financial responsibility for the first time – such as buying a house or starting a family – would see the sharpest increase in daily expenses.
“The standard model is that spending increases for people until their mid-50s anyway and then decreases after that,” he said.
“People around that late 20s – early 30s age bracket are typically taking on more responsibilities so their spending will have increased dramatically as they’ve taken those things on.
“That’s when things like mortgage payments, demands for money for childcare etc. are likely to be highest for people.”
Stream more finance news live & on demand with Flash. 25+ news channels in 1 place. New to Flash? Try 1 month free. Offer ends October 31, 2022 >
Mr Hurst said that despite the immediate financial pain, the Reserve Bank was attempting to cool inflation and ultimately lower cost-of-living pressures in the long term.
“The bank wants to maintain full employment, but also lower and stabilize inflation – that’s why their job is so difficult because often those goals can counter one another,” he said.
“It’s a challenging period – there are so many pressures on the cost of living on top of both interest rates and energy prices now increasing too much.
“A lot of people are feeling a little nervous about the current situation – my advice would be to reassess the budget from the ground-up and think about what parts of consumption you can do without, and what parts can you optimize?
“Mobile phone plans, Netflix – think about how you can make those smaller cuts.”
Bryce Leske, retail investor and co-founder of the popular Equity Mates podcast added that despite the strain placed on younger Australians, people of all ages who had mortgaged a house in the last decade was likely to be rocked by the rate increase.
He also warned that higher interest rates didn’t necessarily translate to higher saving returns on the bank statement.
“I’d like to say people with cash in the bank will benefit from this, but the banks last time didn’t pass those rates on to savings accounts,” he said.
“There aren’t many winners from this, to be honest.”
Mr Leske, who specializes in helping people from all walks of life navigate the oft-confusing world of finance, the recent rate rises are a rude awakening to the realities of markets for a generation of younger professionals.
“This is the first time a lot of Millennials will experience rising interest rates – anyone who has entered the workforce over the last ten years wouldn’t have seen activity like this,” he said.
“It’s an interesting lesson for people to understand the importance of diversifying, and not going all-in on certain investments.”
Despite the monetary shock, Mr Leske pointed out that increasing amounts of younger customers were opting to invest their money in shares over property, in part protecting them from the shockwaves of a volatile cash rate.
“It’s great that not as many people are fixed on buying a home as perhaps our parent’s generation were,” he said.