The dream of business ownership is drifting out of reach for young Aussies

In the past, starting a business was a young person’s golden ticket to financial independence. Today, however, for many young Australians, this dream is drifting out of reach.

The potential repercussions for our economy could be profound. We risk stifling innovation, curtailing growth, and diminishing opportunities for upward mobility — fundamentally undermining the entrepreneurial spirit upon which Australia was built. Urgent measures, particularly in areas of financing and government intervention, are crucial.

ASBFEO data paints a stark picture: there’s a shift in the age profile of small business owners. The most common age of SME business owners has jumped from 45 years old in 2006 to 50 this year. Alarmingly, only 8% of business owners are now under the age of 30.

Several factors contribute to this alarming shift. Foremost among them is the housing market. In the 1980s, the average house was priced at a modest $76,500. Today, in most major cities, that figure has skyrocketed to over $1 million, an increase that outpaces general inflation over that period. This exponential rise, alongside increased deposit requirements, deters many young people from entering the housing market.

In the context of business, this has a cascading effect. Traditional business loans often depend on the leverage of mortgages. In an environment where home ownership becomes a distant dream for many young Australians, how can they leverage assets they don’t own?

But it’s not just about houses. The overall cost of living is also surging. Rising rents, inflation, and increased costs for daily essentials have put young Australians’ financial aspirations under duress. If basic needs like housing and daily essentials are becoming unreachable, financing a business seems even more distant.

Productivity growth 

The 2023 Intergenerational Report projects a 1.2% annual productivity growth for Australia. However, this figure might be overly optimistic, as it doesn’t account for nuanced external factors like potential policy shifts. A significant segment of the population deterred from entrepreneurial pursuits will undoubtedly influence these projections.

Productivity growth relies on people finding new, more efficient ways of producing economic value. Traditionally, young entrepreneurs are particularly suited to this task because they are the ones who can afford to take risks and try new things. Australian Darren Warren, for example, was 28 years old when he invented the Black Box that would change the world of aviation safety forever. The young entrepreneurial mindset is one of innovation and creativity. It is one that responds to the challenge of limited resources with audacious ideas. The best of these ideas ‘stick’ and change the way that others go about the same tasks. 

As a result, we get more from less — more profit from fewer resources, higher wages from less effort. That, in a nutshell, is productivity growth. But that has stalled over the last two decades, leaving us in a ‘productivity predicament’. This predicament will only get worse if we can’t harness the power of young entrepreneurs because they are being financially excluded. 

To add insult to injury, the upshot of stagnant productivity growth for young Aussies is that they will not enjoy the same increases in living standards and prosperity that their parents’ generations did. 

Bridging the Innovation Gap

The Intergenerational Report identifies five pivotal forces shaping Australia’s economic trajectory: population ageing, rising digital/data technology adoption, climate change and the net-zero transformation, increased care/support service demand, and heightened geopolitical risk. Innovation is the binding element among these.

New businesses spearhead this innovation. The younger generation’s ideas, technologies, and growth strategies are invaluable. If they’re deprived of capital access, our innovation prospects darken. Diverse thinking — spanning generational, gender, racial, and geographic divides — is the bedrock of breakthrough solutions.

Between 2021 and 2022, SMEs bolstered the economy by a staggering 15%, contributing $506 billion — a third of Australia’s GDP. Restricting the under-30s’ market access spells foreboding economic times.

What is to be done? 

With home equity-based business loans increasingly out of reach, financiers and brokers must rethink our lending practices in the interests of young people. A shift from collateral-centric systems towards strategies like leveraging in-business circulation capital can be a start.

Venture capital and angel investors have a role to play. We need to be fostering a culture where VCs are more open to funding younger entrepreneurs. The federal government could consider a range of tax-based measures to encourage this, including extending tax offsets on investments in early-stage innovation companies (ESICs) founded by young entrepreneurs. 

Encouraging investment in high-risk enterprises will also help to diversify our resource-reliant economy and make it more resilient to external shocks. This will be a crucial task for tomorrow’s entrepreneurs if we want to maintain Australia’s economic advantages in the world.  

The greatest shift will come from a more targeted approach to cost-of-living relief and addressing the housing crisis. Policies along these lines, I hope, will play a pivotal role in federal elections for the next decade. 

Australia’s rich tradition of innovation shouldn’t stumble at the starting line. It’s time for the government, policymakers, financial institutions, and business leaders to collaborate on solutions. 

Wayne Morris is CEO of Fifo Capital.