Young Australians financially “devastated” by COVID-19

Young Australians are bearing the brunt of the coronavirus-induced economic downturn, but may have to foot the COVID-19 bill during their working lives, new research suggests.

Nearly one third of Australians aged 30 to 44 said that the coronavirus crisis has “devastated” their personal financial situation, according to a J.D. Power survey of nearly 2,000 Australians, conducted June 24 to July 13. This figure is up eight percentage points from 23 per cent when the previous survey ran in May.

As unemployment soars, more younger Australians have lost their jobs than those in older age groups. Almost one in five millennials, or those aged 18 to 29, have temporarily lost their job, while eight per cent became permanently jobless. COVID-19 has cut working hours for 37 per cent of this age group.

More millennials are relying on government financial support, such as JobKeeper and JobSeeker, than older Australians. More than half of millennials are on some form of government welfare, while 49 per cent of those aged 40-plus are on government benefits.

Bronwyn Gill, head of banking and payments intelligence at J.D. Power Australia, said it wasn’t just young people who were financially affected by COVID-19.

“While the effect has been greater for younger people, particularly in the initial months of the pandemic, many people across all salary levels indicate the pandemic has devastated or severely hurt their financial situation,” Ms Gill said.

“With an increasing number of redundancies of salaried employees, one in four with (an) income more than $100,000 are also saying they have had their finances devastated or severely hurt. The effect is very widespread.”

What are the longer term financial impacts of COVID-19 for younger Australians?

Despite being heavily hit by the pandemic, young Australians are likely to pay for the cost of dealing with the crisis through higher taxes during their working years according to new research from the Productivity Commission (PC). Government stimulus measures have ballooned to some $289 billion, or 14.6 per cent of the nation’s gross domestic product. 

More broadly, young Australians’ income has been found to be on the decline, and there’s a risk that this may worsen due to COVID-19. Between 2008 and 2018, income growth has slowed for those aged 15 to 34, but this hasn’t happened for those aged 35-plus.

“Young people have experienced a ‘lost decade’ of income growth. This means they entered the COVID-19 crisis already on lower wages and usually with limited savings,” PC commissioner Catherine de Fontenay said.

“Young people face discouraging prospects in a tough job market; and there is a danger they will simply give up on their aspirations as they take positions further down the jobs ladder.” 

The study also noted that recovery prospects for the sectors most affected by the pandemic, including retail, hospitality and tourism, are uncertain, which may keep unemployment among young people “high for some time”.

As a result of the slower income growth, young Australians have found it more difficult to build their savings as effectively as earlier generations, with many young people wiping out their savings during COVID-19, according to the report.

What are your options if you’ve been financially affected by COVID-19?

If you’re a young person who has been financially hit by the pandemic, you’re likely to be in the same boat as plenty of others. The good news is that there are a few options you may consider to better manage your personal finances, and potentially save more money.

1. Switch to a high-interest savings account. Some lenders may offer higher interest rates for young people. One example is Westpac’s Life savings account, which has a maximum rate of 3 per cent and a base rate of 1 per cent for those aged 18 to 29. Bear in mind that you may need to satisfy some conditions to achieve the maximum rate. 

2. Change credit cards. It can be easy to accumulate credit card debt, with the purchase rate on some cards reaching an eye-watering 20 per cent. If you don’t want to lose your credit card, there are low-rate options worth considering on the market. The lowest credit card rate on the RateCity database comes from G&C Mutual Bank, which has a 7.49 per cent Visa credit card. The credit card with the lowest purchase rate may not always be the best option for you, so aside from the rate, it’s best to compare fees, features, as well as the terms and conditions. 

3. Load up your super. This option may be something to think about further down the track, but it could be a good idea to boost your super balance if and when you’re in a financial position to do so. Remember that your super is your retirement money, and young people have the benefit of time to allow your nest egg to grow. Topping up your super balance over time may mean a higher balance when you retire. However, everyone’s financial situation is different, so you may want to consult a financial adviser before making decisions about your super.

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