Investors name 5 biggest barriers to financial goals

Australian investors say housing costs, goods inflation and slow wage growth are the main barriers to achieving their financial goals, according to a survey. Their biggest goals in order of importance are retiring and living off their investments, supplementing their work income with investment income, funding holidays and travel, cutting back on their hours of work and buying a home.

Online trading platform Stake surveyed more than 2,000 Australian investors for a comprehensive report about their ambitions this year. The report concluded that the biggest barriers to financial goals reflected a broader problem, being that salary and wages are not keeping up with rises in the cost of living, including property prices and weekly rents.

Australians say the biggest barriers to achieving their financial goals are as follows.

Housing costs

Saving a deposit is one of the biggest hurdles for first home buyers today, with most workers unable to save fast enough to keep up with rising home values. The median Australian home price rose by $59,000 over FY24 while rents increased by 7.3 percent over the same period. CoreLogic data shows rents have risen by almost 40 percent over the past five years. Stake CEO, Jon Howie said: “In Australia, over the past 30 years, house prices have risen by an average of 8 percent per annum, compared to around 3 percent for wages …”.

Goods inflation

 Since the pandemic, rising inflation has significantly increased the cost of goods and services. At its peak, inflation hit 7.8 percent per annum in the December quarter of 2022, according to the Australian Bureau of Statistics (ABS). By that time, the cost of petrol had risen 13.2 percent over the year and fruit and vegetables were up 12.6 percent. Higher interest rates are now working to bring the rate of inflation down. But this only means the cost of goods and services is rising at a slower pace. For example, petrol prices rose by another 7.7 percent in FY24. Services inflation is higher, with insurance up 14 percent over FY24 and electricity up 6 percent (although without government rebates it would have been 14.6 percent higher).

Slow wage growth

This week the ABS published an updated Wage Price Index report, which found wages rose by 0.8 percent over the June quarter while inflation rose by 1 percent. Over FY24, wages rose by 4.1 percent and inflation rose by 3.8 percent. Once again, higher interest rates are bringing the rate of inflation down now. However, when inflation was at its peak of 7.8 percent in December 2022, wage growth was well below this at 3.3 percent.

Costs of supporting a family

ABS data documenting how inflation is affecting various household types found employee households, which include working families, are worst affected. The ABS Living Cost Index for employee households rose by 6.2 percent in FY24 compared to the overall inflation rate of 3.8 percent. A recent report from KPMG found rising living costs were impacting family formation. KPMG urban economist Terry Rawnsley said: “With the current rise in living expenses applying pressure on household finances, many Australians have decided to delay starting or expanding their families.”

Unfair tax system

 While the Stake report did not specify which taxes survey respondents felt were unfair, there is ongoing debate in the community about tax breaks given to property investors. Negative gearing is very common among Australian landlords, with rental income not typically enough to cover holding costs, including interest on an investment loan. Landlords are able to deduct this loss against other taxable income, such as their salaries. Investors also pay tax on only 50 percent of their capital gains when they sell an asset if they have held the asset for more than 12 months.