They’ve studied harder and longer than any generation before them, pulling longer hours at the office, and sometimes even holding two jobs at once. Yet many seem to feel they are ‘standing still’, thanks to rising education costs leaving them saddled with large debts and the reality of ever shrinking real wage growth. They’re aged 45 years and under, and they’ve been coined ‘Generation Squeeze’, a sector of the economy struggling to adapt to a new world order. Because despite increased education, longer working hours and often double income households, Generation Squeeze just can’t get ahead. Globally they represent a growing number of millenials and Gen Xers for whom wealth creation and affordable housing is becoming increasingly unattainable. And there seems to be no discernible end in sight.
The numbers here in Australia certainly paint a grim picture for these middle income earners when it comes to seeking financial freedom. According to new statistics from CoreLogic RP Data, Sydney’s median house price reached $900,000 at the end of June, after growing 17.8 per cent during 2015. Research from ANZ is equally gloomy, estimating it now takes a near-record 9.2 years to save a deposit for the average home in Sydney, and 8 in Melbourne. And while there are arguments both for and against home ownership as a means of wealth creation, there is no getting away from the fact that the bar to owning your own property is getting higher.
It’s not just Australia however. Canada, the country who first coined ‘Generation Squeeze’ has been battling with median housing prices in Vancouver in excess of $1.2 million. Earlier this year the Generation Squeeze movement hit the Canadian twittersphere, when local Vancouver resident Eveline Xia, a 29 year old local asked Vancouverites to share their stories about struggling to purchase property using the hashtag #DontHave1Million. It sparked an outburst of discussion, including a intergenerational wealth debate lead by a new Canadian lobby group, seeking policy intervention to address the growing wealth inequality.
The parallels of Vancouver to Sydney and Melbourne, cities praised for their lifestyle and amenities, are clear. But where there are real and sticky financial problems, the type that filter through into social problems, there are also opportunities. Opportunities, that is, for smart fintech. And for many new players it’s about thinking small, rather than thinking big when it comes to servicing the growing number of people stuck in Generation Squeeze. Because it is clear that this generation need to find smarter ways to save, and more innovative ways to make their money work harder than ever. And a slew of wealth management applications and roboadvisors is a clear indication that their receptiveness to cost effective wealth management tools is on the rise.
So what is the perfect storm of factors that makes wealth management, traditionally the preserve of the elite, cost effective? The first three factors involve removing the barriers to investment, namely high initial investment amounts, expensive advice and exorbitant management fees. But the final magic ingredient? Finding a way to change an individual’s investment and saving behaviour.
Enter stage left Acorns, a ground breaking micro-investment app that intends on turning the spare change left over after each purchase into mini investments. By rounding up a coffee purchase of say, $3.50 to the nearest dollar, Acorns takes the remaining 50 cents and, with your approval, via it’s mobile app, invests it automatically into one of its stock portfolios. It’s brilliant, painless and seamless – they way saving and investing should be. And it’s all for less than the cost of a return train fare to see your financial planner.
But the real secret sauce for Acorns, is that rather than treat saving and spending as two discrete actions, Acorns changes the paradigm and let’s you do both. As wealth management behemoth MLC would say, from little things, big things grow, and it’s clear to see that the painless and regular deposits of little ‘acorns’ of cents will eventually mature into a majestic Oak like investment. With returns on the stock market generally out-performing rates on savings accounts over 5 – 10 year periods, Acorns could be the type of wealth creation rocket fuel Generation Squeeze need so desperately.
Acorns could be called a truly disruptive fintech. And we certainly need more of them, willing to take on challenges like Generation Squeeze head on. And while a significant number of new companies in the fintech space do remove frictions from the wealth creation sphere, the number tackling the real problems; those locked deep in the psychology of human behaviour and the very way we as nations approach wealth distribution, are few and far between. It could be argued that some fintech is nothing more than ‘green washed’ banking, with clever rebranding and flashy mobile apps merely the old wolves dressed in sheep’s clothing. Hopefully the near future is full of more Acorns, ready to shoot forth and have a crack at addressing the fundamentals of what it takes to close the widening wealth gap.
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