One age group is feeling the economic pain more than the rest
Younger Australians are cutting back on things they need as well as things they want, as rising rents and home loan repayments force them to make tougher spending decisions than older people who have more savings, new research shows.
CommBank spending data shows Australians on average are slowing their discretionary spending as interest rates and consumer prices rise, but the 25-29 age group is the only one that is also spending less on items considered essential.
Among 25-29-year-olds, discretionary slumped 6.2 per cent. Edwina Pickles
Analysts said the reduction in spending in both categories was an unusual manifestation of cost-of-living pressures that are forcing younger people to change what they eat and how they travel to pay rent and mortgages.
The average Australian spent a total $2920 a month in the third quarter of 2023, with $1473 going towards essential goods and services and $1447 being discretionary. That reflects a 3.5 per cent increase in essential spending, and a 0.2 per cent uptick in discretionary spending. The figures do not include housing costs.
But among 25-29-year-olds, essential spending fell 3.7 per cent to $955, and discretionary slumped 6.2 per cent to $1300.
Essential spending by Australians aged 65 and older increased 5.5 per cent to $1518, and discretionary spending rose 7.2 per cent to $1176, for a total of $2695.
CommBank head of analytics and innovation Wade Tubman said the 25-29-year-old cohort was the only group to reduce discretionary and essential spending, and signalled members were making “dramatic” decisions to create space in their budgets for higher mortgage and rent costs.
“Generally, it’s harder to change your essential spending, compared to your discretionary spending – you don’t have much choice about whether you drive to work or pay your electricity bills,” he said.
“It is quite unusual and that is a new finding.”
Cuts to essential spending could be in the form of opting for the bus rather than driving to work, reducing extras cover on health insurance or shopping at cheaper supermarkets.
“When it comes to young people … they’re in a spot where, on average, they’re more likely to be renting or a first home buyer. And both of those groups are seeing high increases in the costs of housing. Rents are up particularly, especially in our metro areas of Sydney and Melbourne,” Mr Tubman said.
CommBank iQ’s Wade Tubman.
“That group is impacted more than others, and that group also hasn’t had the number of years of life to build up the buffers. Older age groups potentially have had more years to build up savings or pay off their mortgage.”
However, he noted that the biggest increase in spending among those 25-29 was entertainment spending, up 13 per cent to $58 – albeit lower than the average $61.10.
Of the $2920 spent by the average adult, supermarkets ($433.70), insurance ($225.50) and utilities ($215.60) formed the largest portions of essential spending. Eating out ($325.30) and travel ($226.20) were the largest discretionary spending elements.
The average person spent $7.70 on charities a month, down 5.1 per cent.
A separate survey of 1063 Australians by comparison group Finder found one in 10 Millennials and 9 per cent of Generation Z Australians have taken out a credit card in the last 12 months to deal with rising costs.
Introducing your Newsfeed
Follow the topics, people and companies that matter to you.
Find out moreRead More
Latest In Personal finance
Fetching latest articles