The growing impact of Australia’s evolving ‘grandparent economy’

Baby boomers make up just 21 percent of the population but hold almost half of the nation’s private wealth, creating a ‘grandparent economy’. McCrindle Research said the trend indicated it would have a significant influence in today’s society and directly contribute to the financial wellbeing of younger generations.

The impact of baby boomer wealth is routinely seen in the property market, with boomers often observed at auctions standing side-by-side with their younger relatives as they bid for a potential new home. The Bank of Mum and Dad is likely a significant contributor to above-average first-homebuyer activity in a market with rising values and interest rates at their highest point in 13 years.

CoreLogic recently cited figures from the Australian Bureau of Statistics showing first home buyers comprise 28.7 percent of new owner-occupier finance, well above the decade average of 24.6 percent. One might assume that over the year to May 31, when the median national home value rose 8.3 percent and the official interest rate went another 0.5 percent higher, first home buyers’ budgets and borrowing capacity may have been squeezed. Instead, the value of their loans rose by 10.1 percent.

McCrindle says: “Baby Boomers … are having significant impacts in the economic landscape, showcasing their pivotal role in wealth transfers as they actively contribute to and shape the financial dynamics over the years ahead. Over the next two decades, we anticipate that $6.2 trillion of wealth will be transferred to younger generations. As a result, the grandparent economy is rising, facilitating wealth and contributing to the financial wellbeing of younger generations.”

In a survey published last year, McCrindle found grandparents were acutely aware of their younger relatives’ financial challenges. When asked about their greatest concerns for them, 77 percent cited the rising cost of living and 72 percent nominated the rising cost of buying a home. These concerns are influencing baby boomers’ own financial decisions, with 32 percent intending to pass on more than 50 percent of their wealth directly to their grandchildren.

A recent report published by Colonial First State found three in four Australians plan to set aside a portion of their superannuation to pass on as an inheritance. Another survey by financial advisory company Findex found providing for relatives was a key motivator for 29 percent of investors.

McCrindle says: “As the current generation of grandparents continue to live longer and remain active well into their later years, their investments in properties and superannuation funds become pivotal components of the broader economic landscape. This trend signifies a notable shift in the traditional roles of grandparents, who are now not just recipients of support but active participants and contributors to the evolving economic dynamics, embodying the essence of the new investor in the financial landscape in the years to come.”

McCrindle Research shows two in five young Australians have received assistance from their grandparents. Most of that help is financial, including inheritances, living with them rent free, or paying cheap board, and getting help with everyday bills.