M
ost people don’t like to
talk about it. But it is one
of the biggest financial
dilemmas facing the gen-
eration aged in their 40s
to60sanditisblowingabigholeintheir
savingsandfutureplans.
Howdotheyhelpsetuptheirchildrenwhile
supporting their ageing parents, who are
living longer and struggling financially? It is
a tough financial balancing act. Middle-aged
people are being squeezed on both sides, which
is why they are called the sandwich generation.
“The sandwich generation is having it
tough.Theirbest-laidplansarebeingtorn
apart,”saysDamianHill,CEOofREST,a
superannuation fund that commissioned a
survey of the intergenerational pressures
facing Australians.
Presentlysome$500billionismovingup
anddownthefamilytree,accordingtoREST’s
study,with$300billionofitfromolderwork-
ers. Most of the money (72%) goes to adult
children to help with education costs ($109
billion) as more young people are attending
university than ever before and parents want
theirkidstohavetheopportunitythatit
brings. A further $93 billion is given to the
kidsforeverydayexpenseswhile$68billion
is handed out in home deposits.
Butifthatwasn’tenough,theyarealsomeet-
ingtheneedsoftheirparents.RESTfoundthat
14% of people are helping their parents pay
theirbills,particularlytheirmedicalbills,as
they age. He says a generation ago life expec-
tancywasseveralyearslessthanitisnow.
“Thenyoudidn’thearaboutahiporaknee
replacement.Nowitiscommon,"saysHill.
"One in seven older Australians are providing
health support to their parents, paying their
general medical bills, particularly if they suffer
aseriousillnesstohelppayongoingcosts.”
But providing financial support for kids
and parents puts their own financial wellbe-
ing at risk. As they edge towards retirement,
theknock-oneffectmeansthatsome46%of
pre-retirees are carrying debts and 20% will
retirewithamortgage,accordingtoREST.
Their generosity now will have a future
impact on their future lifestyle. REST found
thatoneinthree(35%)retireesareliving
with what they describe as a "frugal" retire-
ment, says Hill.
“It’s clear that many Australians aren’t
living the retirement that they wanted,” he
says.Butitisimportantnottosacrificetheir
retirement. Certainly pre-retirees need to
maketheirownfinancialneedsatopprior-
ity.Theyneedtoputinplacecarefulbudg-
eting and spending, he says.
The sandwich generation needs to under-
standtherealitiesoflifeanddoabitmore
planningandfaceuptothefinancialcostof
retirement,saysHill.Onestrategyistocon-
tribute more to super and consolidate accounts.
Butitisnowonderthatparentsarehelping
their young adult children. Education costs
are rising, home ownership is increasingly
outofreachformillennialswhilewagegrowth
of barely 2% means that incomes aren’t keep-
ing up with the cost of living. Future gener-
ationsofyoungpeopleare,forthefirsttime,
settobeworseoffthantheirparents,accord-
ing to a number of reports.
Thebigexpenseiseducation,astheyoung-
er generation is the most educated yet, says
Hill. “Every generation wants their kids to
have more opportunity. They are coming to
the party to make sure that they get ahead.”
Thefutureofworkislessstableand
secureforyoungadultsthanitwasfortheir
parents. And there has been a drop in full-
time employment.Housing crisis
Not surprisingly, nine in 10 parents (94%)
are worried about housing affordability and
howitwillaffectthefinancialfutureoftheir
children, according to the report The Future
Affordability: Finding Freedom from the
Bank of Mum and Dad, conducted by Galaxy
for the digital investment adviser Stockspot.
It found this trend across all ages, locations
andincomes.Mums(63%)aremorelikelyto
be "very concerned" than dads (51%).
Most (74%) fear that their children will live
at home well into adulthood to become “gen-
eration never leave home”. And this means
that future boyfriends, girlfriends or partners
will move into the family home permanently,
which 55% of parents are not happy about.
“Parents are bombarded every day with news
of impossible-to-afford houses and the rising
costofliving,”saysChrisBrycki,Stockspot
CEO and founder. “Younger parents, those
aged 18 to 34, are the most worried. They arealreadyvictimtothehousingcrisisandlow
wagegrowthandnowthey’reseeingthecost
of education go up.
"Some67%ofparentsbelievethattheywill
have to delay their own plans and a further
67%expectthattheywillhavetoprovide
money to help them buy their first home.”Smart saving
Butwhileparentsaresqueezedinbothdirec-
tions,manyarenotsureifthey’llhavethe
fundstohelptheiradultchildren.“Ibelieve
future generations won’t be able to rely
sostronglyontheBankofMumandDad,”
says Brycki.
He says it is common for parents to open
abankaccountfortheirkids,butthesurvey
foundthattheydon’tstartaninvestment
account. Most (68%) are most likely to put
moneyinabankaccountiftheyweretostart
a savings strategy for their children. How-
ever, relatively few would put money into a
share investment portfolio (13%), because
they lack knowledge about investing or believe
it to be too risky or unaffordable.
“Savingearlyandfrequentlyisthesingle
mosteffectiveactionaparentcantaketohelp
children get a financial headstart,” says Brycki.
“Putting money in a bank account is cer-
tainlyawisethingtodobutparentswho
avoidinvestingmissoutonthebenefitsof
compound returns. An investment of $2000
in a high-growth portfolio and regular top-
upsof$100amonthatanaverageafter-tax
return of 7% per year would result in $60,000
in 20 years. Compared with that, today’s
average bank interest rate of less than 2%
would achieve only about $32,500.
“Education is vitally important. Too many
parents think they ‘don’t get it’ and don’t teach
their children about the value of compound
returns. Or they think it’s too risky because
they had a bad experience stock picking.
“Digital investment services can now
spread investments across thousands of
companies from Australia and around the
world to reduce risk. It’s never too early or
too late to start saving and investing. Tech-
nology has made saving and investing eas-
ierthanatanyotherpointinhistory.The
opportunity is there, parents just need to
take it”.M
A son’s juggling act, page 74