Article written by Joanna Mather and Lucy Dean. Published in The Australian Financial Review May 3, 2024.

NAB data shows the over-65s age group has curbed spending the least as interest rates have risen, but financial advisers say many Baby Boomers are helping younger family members rather than splurging on themselves.

Some commentators have blamed spending by wealthy retirees for fuelling inflation and therefore giving central banks cause to keep interest rates elevated.

NAB head of behavioural economics Dean Pearson said a survey of 2000 Australians – not all of them NAB customers – in the first three months of the year found far fewer over-65s had made cutbacks than people from younger age groups.

“But we’re also seeing evidence of spending cuts among older people,” he said. “The idea that Baby Boomers are not experiencing price rises and simply coasting through the cost-of-living crunch is a little unrealistic.”

Overall, school fees were among the expenses that survey respondents were least inclined to cut, Mr Pearson said.

“I do wonder if this in part reflects older age groups leaning in to help their adult children and grandchildren on things like school fees, kids’ activities, and other things and using the position they’re in a better financial position to help.”

Helping the (grand) kids

Anecdotally, retired Baby Boomers are providing more financial help to their kids and grandkids.

“For my clients at the higher end of wealth, I am seeing many more extended family holidays, where the parents or grandparents pay for a big overseas or domestic holiday for everyone,” Shadforth private wealth adviser Charlie Fraser said.

“This reflects how hard the younger generations are having it, and a desire from older generations to create experiences and memories for their grandchildren.”

Mr Fraser said more clients were paying for the private education of their grandchildren, often directly to the school.

Calder Wealth Management managing director Ben Calder said the “love is being shared” with extended family.

“We are absolutely seeing self-funded retirees, even retirees on partial age pension payments, looking to help their children, given the high cost of living, by contributing towards grandchildren’s school fees, holidays and help them with mortgage repayments, usually in the form of lump sum gifts to their children,” he said.

Challenger chief economist Jonathan Kearns, who previously worked for the Reserve Bank of Australia, said he was wary about jumping to any immediate conclusions about whether retiree spending might be blunting the effects of interest rate rises.

Although there are more wealthy retirees, there are also more households having to cut spending because they are repaying large mortgages over longer periods, he said.

“It may well be that what we’re seeing is the impact on those households who benefit from higher rates via their interest-bearing assets offsetting the impact on those households who bear the cost of higher interest rates,” he said.

“How quickly and to what extent monetary policy has an impact is going to depend on the trade-off between those two groups.”

“Another thing that could be going on is that households bearing the cost of higher interest rates have built up balances in offset and redraw accounts, and are using those to cushion themselves,” Mr Kearns said.

But even if they are spending to help younger family members, that’s not to suggest that Baby Boomers are not spending on travel in particular.

“Many Baby Boomers have either delayed travel or did not have the time during their working lives so often play catch up post-retirement,” Hewison Private Wealth director Glenn Fairbairn said.

“Many of these plans were put on hold during COVID, so this pent-up demand has resulted in larger travel costs over the past 12 months.”

The Bank of Mum and Dad

Mr Fairbairn said there remains a heavy reliance on the Bank of Mum and Dad in the economy, but other examples of Boomers spending on younger generations included helping with rent and gifting investment properties.

The Bank of Mum and Dad injected more than $2.7 billion into the property market during 2023 as around 15 per cent of borrowers tapped their parents for financial help, analysis by wealth management and investment banking firm Jarden found.

Mr Fraser said some clients were paying lump sums directly into their children’s loan offset accounts to reduce repayments while treating the money as a loan.

“Interestingly, many of my older clients say they perceive an unwillingness from the younger generations to take a haircut in their lifestyle expectations now that we are no longer in a low inflation, low interest rate environment,” he said.

At the same time, he says Boomers are aware that an ever-dwindling tax base would impose a heavy burden on future generations.

“Many are accepting of the fact that the days of the tax-free super income may well have to come to an end at some point.”