by Scott Pape - June 27th 2009
How time flies I can’t believe my little baby is now 17 years old!
“Now that you’re a little older, I’ll admit that when we found out that your father and I were having you, we were a little worried how would we ever afford you? Of course somehow we did.
“We had some great times while you were growing up into a bulging superannuation fund we were so proud of your achievements, love.
“All those fees we paid to have the best and brightest people guiding you seemed to be money well spent. Each year we couldn’t wait to get your report and see how well you’d done.
“Sure there was the family holiday to South East Asia that your father still doesn’t like talking about (he calls it the ‘Asian Crisis’), but really, it was just a storm in a teacup.
“Well, it was compared with what you’ve put us through lately.
“You just don’t seem to understand just how much blood, sweat and tears we’ve put into raising you. We’ve even sacrificed our salary for you.
“I know you’re from a different generation, but in our day it used to work that we support you while you’re young, so that you’ll look after us when we’re older.
“However these past 18 months have been particularly tough on your father and me. That international student exchange program we sent you on to America turned out to be a right mess, didn’t it?
“Yes dear, I know it wasn’t completely your fault, but your father and I are still going to have to pay for it. Things are so bad it looks like we might have to work a few extra years to cover all the damage you caused trashing all those homes.”
Worst record super returns
We all feel like talking this way to our superannuation fund.
Paul Keating Gen Y readers, he was once a bitter politician, now he’s just bitter introduced compulsory superannuation 17 years ago, and we’re now suffering through the teenage blues.
This year funds are set to post the worst returns on record.
Superannuation futures
So much is written about where superannuation returns are headed, especially right now with the new financial year fast approaching.
I’ll save you time. No one knows. If they did, the investment geniuses at Babcock and Brown wouldn’t be peeling potatoes right now.
Demographic destiny
So if we know what we don’t know, what’s left to hang our hat on?
A smart cookie once said that ‘demographics is destiny’. As generations move throughout their lives they act and spend differently having a big bearing on investments.
Australia, like the rest of the world, has an ageing population that will have serious ramifications for health care and retirement entitlements. The rise in caravans, Kerri-Anne Kennerley, and botox can all be traced back to Baby Boomer bucks.
US predictions for Australia
This is why last weekend an article featuring visiting US demographics guru Harry Dent caused Barefoot to choke on his cornflakes.
The opening paragraph read: “Australia’s share market will halve in value, house prices will slump as much as 40 per cent, and unemployment will climb to 10 per cent.
“Look at Japan to see what happens when a generational trend finally slows your economy and a housing bubble bursts. Housing peaked in 1991 and is still down over 60 per cent from the peak 18 years later.”
Science of demographics
Before you cash in your chips, understand that demographics is not an exact science.
Long-term trends certainly shape society, but using it as a basis for sorting the Woolworths from the Coles Myers is a lot harder than you think. Just ask Dent, who once had mutual funds that invested based on his predictions and have now closed due to poor performance.
After many emails from concerned readers, I decided to hunt down an Australian expert to get his views.
I found David Chalke, who has spent years studying our changing demographic landscape as a social researcher with AustraliaSCAN.
I asked him:
Will Australia suffer the same situation as Japan?
Chalke doesn’t agree with Dent about Japan.
“While we have similar ageing effects, our economy is completely different to Japan’s. Theirs is a rigid system; large conglomerates control most markets, and workers still rely on having a job for life. The biggest difference is that the Japanese are massive savers, so, on an individual level, they’re probably better off than us (but that doesn’t help expand their economy out of a slump).”
How will other generations be able to support the Boomers in retirement?
Chalke suggests that it’s the Baby Boomers who are doing the bulk of the supporting. “They’ve been hit by a triple whammy. First, they’re still supporting their Gen Y kids who can’t get off the couch. Second, they’re supporting their ageing parents (two thirds still have one parent alive). Third, they’ve taken a massive hit on their superannuation, and their homes are harder to sell.”
What will retirement look like for most of us?
Chalke predicts that, as I’m 30 now, the Government will let me retire or, more accurately, give me access to my superannuation when I’m 75, if I’m lucky.
The upside is that I’ll live much longer. The downside is that I’ll have to work hard to ensure that my superannuation stretches and makes the distance. But that’s where younger people are fortunate.
The Boomers were the guinea pigs of superannuation. Like any nervous parent, they learned as they went along, and they made some mistakes.
Yet it’s an evolutionary process, and younger generations are already learning from their blunders; today we’re seeing the dying days of ongoing sales commissions, and the recent crisis has made people more cautious and less trusting of those who manage their money. And that’s a good thing.
Tread your own path!
Photo:www.flickr.com/photos/landahlauts/2594380366/
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