There’s a significant global shift happening in the social and economic fabric of humanity.
On the one side, are those who have accumulated sufficient wealth to be truly self-sustaining in a world that can be financially challenging to navigate.
On the other, there are people living below the poverty line and struggling to make ends meet.
These so-called ‘wealth gaps’ seem to be a worldwide phenomenon. It’s well known that the majority of all wealth in the US is held by something like less than 5 per cent of the entire population.
Now, reports are emerging from the UK to suggest that young adults have suffered a 36 per cent drop in savings since 2005, while the top 20 per cent of earners are ‘more financially secure today than going into the downturn.’
In other words, there’s a distinct division occurring. And it’s largely between those who went into the GFC with some kind of asset base behind them – particularly if it happened to be a property or two – and those who have come of age in a post-GFC fiscal reality.
The latter group, consisting mostly of Gen Y’s, is further down the worker food chain and therefore on lower income scales than their Baby Boomer and Gen X parents.
They also missed the boat when it came to rising stock market values and a rambunctious property sector during the beginning of the twenty first century.
Debt is the perennial problem
As is the case here in Australia, UK officials are concerned that when interest rates invariably start to go up once more, many who are already struggling with large levels of personal debt will flounder to make the monthly mortgage repayments.
A Social Market Foundation Report revealed that even though more individuals have managed to consolidate and repay non-property related debt, easing some financial burden since 2005, those who remain in debt have experienced a 17 per cent rise in their liabilities.
In other words, they have become more vulnerable to another crash.
Adding to the woes of Britain’s youth are large student loan payments, credit card bills, car loans and barriers to the housing market in the form of heavy credit clampdowns, which has forced a 20 per cent reduction in the number of young homebuyers since 2005.
Emphasizing just how far the gap has widened between the rich and poor, the report reveals that the bottom 20 per cent of earners have 57 per cent less in net financial wealth compared to their counterparts from 2005.
Whereas today’s top income group has 64 per cent more net wealth than the top earning income group from 2005.
Closer to home
Our story is unfortunately not so different than many other nations where an ageing population is putting increased pressure on a slowly dwindling younger, skilled (and able bodied) labour force.
Then there’s the mirroring of problems faced by upcoming generations when attempting to enter the housing market as a homebuyer, or even tenant these days.
It’s good to see our government acknowledging this issue and starting to generate discussion around how we can continue to be a nation that leads the world in economic sustainability and adaptability.
But the fact remains; this widening global wealth gap epidemic will need to be addressed if and when regulators start to feel some type of (inflationary) pressure to increase interest rates.
All it could take is a slight imbalance in this precarious interplay between the haves and have not’s to cause some other type of major economic event. The question is, did we learn our lesson some seven years ago?
Should it be encouraged?
So is Hockey and co’s willingness to nut out ideas around policy change that could see younger generations accessing superannuation to get a foot in the proverbial property door, a good start to supporting the financial longevity of our youth?
They are the economic future when all is said and done.
Or would we do well to see the warnings from this SMF report, indicating that young UK homeowners could be in over their heads, as a timely reminder that Australian lenders need to be ever mindful of an applicant’s borrowing capacity.
The fact that such extreme measures are being considered – dipping into our retirement funds when they’ll be more important than ever over the next twenty years – begs the question, can we expect to see an ever widening and perhaps unbridgeable wealth gap here in Australia?
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).