Boomers, don’t say you had it worse, even if you mean well

When you work in an industry long enough, you quickly begin to see common behaviours emerge. In the finance industry, this includes things like people asking you for investment advice wherever you go and male colleagues donning their puffer vests in unison the minute it dips below 20 degrees.

Another thing that happens, without fail, is as soon as someone under 50 voices concern over the current state of mortgage rates, an older Australian chimes in at lightning speed with, “We paid 17 per cent interest in the 1980s, you know!”

Work in the finance industry for long enough, and you’ll regularly hear boomers piping up about how high interest rates were back in their day.Credit: Dionne Gain

I’m not sure if they do this because they genuinely believe we don’t know that interest rates reached an all-time high 35 years ago or if it’s their roundabout way of saying they also did it tough once and, as such, we should all quit our whinging.

I’m fairly confident it’s the latter of the two, not least because I’ve never met an Australian over 60 who hasn’t dropped the 17 per cent figure at least once when discussing money. What’s interesting, though, is that a number of younger people are now using this retrospective comparison, too.

Rate rises have been a topic of non-stop conversation for well over a year now, but speculation that another hike is on the horizon has understandably got many reaching a new level of panic about how they will make ends meet.

The Reserve Bank of Australia is acutely aware of this, so much so that in its meeting last month, board members used a telling term to describe how Australian households are at right now: “financially squeezed”.

Acknowledging it’s brutally tough for homeowners right now doesn’t have to come at the expense of those who experienced pain before.

The problem with the generational measuring contest between who did it tougher and lived to tell the tale is that it’s deeply, deeply flawed.

It’s absolutely true that interest rates were in the double digits for most of the ’80s and peaked in June 1989 at 17 per cent. These rates unquestionably hit families hard, hurt many, and were unmanageable for some.

I don’t doubt for a minute that servicing a mortgage with double-digit interest attached was painful or that buying a home in the first place didn’t require some kind of sacrifice, even if homes were cheaper then than they are today.

That pain and the memories that come with it are entirely valid. In that sense, the comparison to what homeowners are experiencing today is understandable. But that’s about where it ends.

Yes, on paper, an interest rate of 17 per cent is much worse than the current rate of 6.8 per cent. But for any conversation about comparison to be valid, the most relevant factor isn’t just comparing numbers to numbers alone; it’s context.

Throughout the 1980s, the average mortgage was three times the average annual salary. Today, it is eight times the average salary. Throughout 1989-90, when rates reached the 17 per cent mark, mortgage repayments ate up 44 per cent of household incomes.

We got pretty close to this figure again in 2022, when we were allocating 41.4 per cent of incomes to service our mortgages. Considering major lenders agree mortgages should account for no more than 30 per cent of household spending, that’s pretty shocking. It also validates those cries of how hard things were in the ’80s.

But if you think that’s bad, hold my beer. In 2024, we’ve seen that 41.4 per cent and raised you all the way to 58 per cent. That’s right, friend. Over half a person’s income is currently dedicated to keeping a roof over their head, and that’s before keeping the lights on or putting food on the table even enters the equation.

If that scares you, it should. Data released by Roy Morgan in March found one in five mortgage holders (994,000 Australians) are “extremely at risk” of financial stress due to high repayments.

Another crucial point of difference in the 1980s apples versus 2020s oranges debate is wage growth. Throughout the ’80s and ‘90s, wage growth remained on a relatively steady incline for the majority of employed Australians.

Not only did that make meeting mortgage repayments slightly easier than it is for today’s mortgage holders, but it also meant the portion of a person’s income being eaten up by repayments grew smaller and smaller as time went on.

In the current decade, wage growth has largely remained stagnant, while the cost of houses and, by extension, the size of mortgages has shot through the roof (this is where that 3:1 versus 8:1 ratio comes in).

Personally, I’d always rather have higher interest on a lower loan amount while my earnings grew, than have lower interest on a higher amount while my earnings sputtered along.

While the first option is certainly likely to cause short-term pain for a while, over the course of the average mortgage loan span of 25-30 years, it evens out much quicker. But in having to make essentially the same amount of money for further for longer, which is what we’re seeing now, getting ahead becomes virtually impossible for the majority.

But here’s the thing: acknowledging that it’s brutally tough for homeowners right now doesn’t have to come at the expense of those who experienced pain in the ’80s and ’90s. It shouldn’t be a competition of who struggled the most – there’s enough space for both to be true. However, if you lived through that, you likely remember the pain all too well, even if it was three decades ago.

And if you do, instead of chiming in with the words “17 per cent”, however well-intentioned, next time you hear someone voicing their concern and stress about the rumoured August rise, maybe cut them some slack and just acknowledge how tough it is.

I can guarantee, knowing someone who’s been through something similar and come out the other side is more comforting than kicking off a generational war at work.

Victoria Devine is an award-winning retired financial adviser, best-selling author and host of Australia’s No.1 finance podcast, She’s on the Money. Victoria is also the founder and director of Zella Money.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

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