Hey mum, can I have the keys to the house?

The reason why economics is called a dark art more than a science, is because when a government starts tinkering, some of their most beloved policy creations – like the spawning of private schools, for example – are vulnerable to crumbling.

When Joe Hockey announced in his budget that university fees would be deregulated, he didn't forsee that the number of private schools could shrink as a consequence – possibly down to a few blue-blood holdouts – because parents may choose to invest in an American-style college fund instead of paying $100,000 in school fees. This is the direction we may be heading, says Mark Wooden, professorial research fellow and director of the HILDA Survey (Household, Income and Labour Dynamics) at the University of Melbourne.

''I expect parents of the kids who are now 12 will be asking themselves: 'Am I going to put my money into a grammar school, or should I help my kid going to uni?' '' he told The Sunday Age. ''If we are truly going toward an American system, where the top-end universities have Harvard-style prices, people will start saving for college.''

He said parents weren't going to want their children saddled with that much debt, plus interest at up to 6 per cent per annum, which is more than the price of a variable home loan.

Wooden says the deregulation of fees will be one of the biggest changes to the socio-economic landscape wrought by Joe Hockey's budget. ''But it's important to remember, the people with university degrees end up earning more. They end up in the top half ... not struggling at the bottom.''

For the aspiring middle class, this represents a reassessment of priorities; for the poorer people, it's dispiriting.

Thomas Green, 20, a third-year economics student at Monash University says students from poor and regional families will accrue more debt because they'll take longer completing their degrees.  The reason being, they have to support themselves.

''And that's compound interest they'll be paying, so their costs will be much higher,'' he says. ''Many will actually struggle to complete their degrees ... and I'd say many of the regional students will give up their places, because moving to the city from the country without support, and facing that kind of debt will be prohibitive.''

Thomas Green understands the heavy lifting that Joe Hockey has bequeathed to Australians with little muscle on their bones. His grandmother is one of them and she is more than pulling her weight. Thomas, and his teenage brother live with their grandmother, a public servant in her 60s. She has taken out a mortgage on her home of 35 years, after paying it off some time ago.

''My grandmother's mortgage is about the same size as her superannuation and so she is quite stressed about her situation after she finishes working,'' says Green.

For the last six to seven years, her job security has been precarious. Now public servants are high on Joe Hockey's list of people he wants gone from the payroll. Green says his grandmother is mighty anxious – and understandably keen to keep her head down, by way of anonymity in this story.

''Given her age, she is not eligible to receive a redundancy package and has limited re-employment prospects,'' says Green. ''I don't doubt that she would have already retired had she not had to support us, and without her help I would not have had the opportunity to go to university.''

Green's younger brother is still in high school, and will rely on his grandmother supporting him when he's at university. If Thomas Green struggles to find a graduate job, he too will continue to rely on his grandmother, whose home will eventually have to be sold to provide some security for when she is no longer able to work.

This is no hard luck story played for pathos. The Greens' situation reflects several worrying trends already in play in Australia – unstable employment, people of retirement age still paying off mortgages, superannuation being used to pay off debt rather than fund living costs in retirement – and others that are about to go ''live'' if Mr Hockey's budget springs to full, unfettered life.

Our economy, and the way we live, is in a state of flux, with the winners being those who managed to stick to the Australian Dream's script and pay off their homes and put some money aside, and the also-rans being everyone else, all the way down to the have-nothings.

For mainstream Australia, inequality doesn't loom largest in the form of a Solomon Lew making a game of holding a David Jones takeover to ransom for $200 million – it's most evident in the cracks that are forming in the ageing middle class, and between the generations.

If Thomas Green's grandmother seems to be just one of those unfortunate people who didn't quite get it together, consider this: in 2007, 45 per cent of home owners aged between 50 and 64 were still paying off their mortgage, according to an April 2012 report from the Australian Housing and Urban Research Institute. In 1982, only 28 per cent of pre-retirees were so burdened.  

It's not a stretch to suggest that in 2014 well more than half of Australian home owners approaching or at retirement age are still paying off a mortgage.

''Indications are that the proportion of people carrying mortgage debts into retirement has and will continue to increase,'' says Associate Professor Rachel Ong of the Curtin Business School.

Professor Ong is the co-author of  several institute reports with Gavin Wood, Professor of Housing and Urban Research at RMIT. In May last year, they published an analysis of HILDA data that indicated that a high number of older people are using their superannuation to pay off their mortgages.

They found that between 2001 and 2010, when a whopping 85 per cent of older people with mortgages withdrew a lump sum from their superannuation, it coincided with a reduction in their mortgage balances.

''It's not forensic proof, but it's a strong indicator,'' says Ong. ''And it has serious policy ramifications. Super is meant to be used to fund your retirement, not pay off your house. What we'll see is an increased demand for the pension, not the reduction that was planned for.''

A report last year from CPA Australia came to the same conclusion.

In an October 2013 AHURI paper, Professors Ong and Wood found that 18 per cent of retirees were drawing down on their housing equity – most of them while living in the home, rather than selling it and down-sizing. This led to media reports that pensioners were using their house like an ATM to pay for items such as private health  insurance, school fees, holidays, or just day to day living.

While the risks of this behaviour is offset by an increase in the number of older people still in work, and some people are using equity withdrawal as a tax strategy, Ong and Wood found ''overall, it is clear that older equity extractors tend to be in a more stressed financial position than those who do not engage in HEW (housing equity withdrawal)''.

They noted that people who drew on their home equity, regardless of age, ''associated with a more pronounced sense of feeling poor or very poor, deeper material deprivation, and a weaker ability to save than those who abstain from HEW. The picture that is emerging ... is one in which older home owners who are financially vulnerable rely on their housing equity to sustain their economic positions or to act as a buffer against adverse life events.''

Adding to the burden on older people are children who need support to kick-start their adult lives. It's old news that children are leaving home much later, and the main reason is financial. Free meals and a bed make for a substantial contribution to one's financial wellbeing, and ability to save – and so it's startling to read in the Genworth Homebuyers Confidence Index, a market survey of more than 2000 people, that 41 per cent of Gen Ys expected their parents to be able to help them buy property. The survey found that 37 per cent of baby boomers and 40 per cent of Gen Xers were in a financial position to be able to help their child buy.

The Bankwest Curtin Economic Centre, of which Rachel Ong is the principal research fellow, last year found expectations were more modest. In the centre's Housing Affordability Report published in April: ''Less than one in five respondents currently living with parents expected to receive help from parents to access the housing market with a further 16 per cent unsure whether such help would be forthcoming.''

Of those who did expect help, 57 per cent were eyeing a cash gift or loan to help with the deposit, and 21 per cent were asking for mortgage guarantee. The number of guaranteed mortgages is reportedly small, about 3 per cent – but it's a risky part of the market.

Financial Counselling Australia's CEO Fiona Guthrie said she advised parents not to guarantee loans for their children. ''We see it when it goes wrong, and it's heart-breaking. Old people potentially lose their home and their relationship with their children becomes fractious.''

Gerard Brody, CEO of Melbourne's Consumer Action Law Centre, says parents often ''don't understand the obligations they are taking on''. More often the centre sees parents taking out loans to help their child start a business. ''When it goes awry, the banks are seeking to recover the money directly from the parents and not the kids.''

A Brunswick couple in their 70s, Shawky and Alice Mihail, face losing their home after guaranteeing three loans for their son Robert's car wash business. The Financial Ombudsman Service (FOS) found a broker had supplied wrong information to Westpac about the couple's ability to meet the debt. However, the Mihail's signed the loan documents and remain liable for their son's debts.

Philip Field, lead ombudsman, banking and finance, says the Mihail story isn't a common one. If parents were falling foul of creditors because they'd helped out their children, ''it's a newer problem that's emerging ... and its too early to get a handle on the scale of it.''

In November, the Grattan Institute will publish a report that will answer an awkward question: is the younger generation of Australians the first in a hundred years to be worse off than their parents? Higher student debt will only add to the challenges of a prohibitively  expensive housing market, high youth unemployment, and an economy that might be better than most, but one that has slowed and is nowhere delivering the 3 per cent growth that guarantees an improved lot to subsequent generations.

Grattan Institute CEO John Daley said the research into generational inequality was prompted in part by community concerns, and the British experience where young people have been saddled with economic torpor for a decade.

The research was proving complex, he said. ''It's turned out to be conceptually one of the more challenging projects we have taken on. We're also asking why does it matter if one generation is worse off? Why would that be bad? It turns out to be less obvious. It's not as simple as one generation versus the next.''

One complicating factor is what's happening with the retired generation, those old boomer bastards who were meant to have it all. Some do, and many don't have as much as they thought they did. One thing they can count on: their children still need them.

The story Hey mum, can I have the keys to the house? first appeared on The Sydney Morning Herald.

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