Mind the generation gap
In July 1957, Harold Macmillan, then Conservative prime minister, proudly proclaimed to a grateful nation: “…most of our people have never had it so good.”
We had torn up our ration books – at last! – and the UK economy was strutting its stuff, with increased production in heavy industries, and wages, exports and investments were buoyant after years of wartime austerity. He went on:”Go around the country, go to industrial towns, go to the farms and you will see a state of prosperity such as we have never had before”. It was the first generation, too, that was able to go consumer-crazy on goodies like TV’s, fridges and cars, actually produced in the UK.
So, how do later generations compare? To get some idea, it is worth comparing the so-called “baby boomers” (people born in the years following the second world war) to those dubbed “Generation Y”, or “millennials,” (those born between 1980 and the mid-1990s).
Well, household sizes have dropped – we’re having fewer children – but car ownership has soared. There are more full-time earners today, probably due to more women entering the workforce. In 1970, the weekly wage was an average of £32 compared to £499 today which is reflected in house price changes: an average property in 1970 would set you back £4,975 (or about four times annual income), whereas today the same house would, according to the latest ONS calculations, hit you for £292,000 (or over TEN times annual income). A ‘basic’ loaf of bread weighed in at 9p as against 55p today. Cinema tickets for two cost 90p in a golden era of movie-going and, despite competition from satellite TV channels and packages like Netflix, lovers of the big screen are now expected to fork out around £12 each! A Mini, which was not even a teenager in 1970 (just 11 years old!) was affordable at £600, compared to its modern mutation starting at £13,395. A pint at the pub cost 20p which was, literally, having a laugh, compared to over three quid today.
Nowadays, we spend more on technology (computers, mobile phones, etc) – considered essential items rather than luxuries – and less on food (down 21%) and we are travelling more, due to cheaper fares and ‘all-inclusive’ deals. Nevertheless, we are spending 80% of our income on housing, education and transport (plus healthcare in the USA), leaving less today for all the ‘little things’ like food, recreation and retirement. On the plus side, money spent on tobacco has dropped 54% as we are a generation of non-smokers. (1970: 20p for 20; today, about £9.20 or 46p per cigarette)
Debt, globalisation, unemployment and dizzying rises in house prices have meant that a generation that expected to be better off than any of their predecessors is facing depressed incomes and unprecedented economic challenges. Generation Y is being cut out of the loop of otherwise rising wealth in western societies. Whereas just 30 years ago young adults earned above national average wages, they are today bringing in up to 20% less than their older peers.
In 2010, the UK economy suffered its first real drop in household disposable income since 1981. In fact, since the start of the economic downturn, median household income has dropped 3.8%. In 1977, the median was the equivalent of £11,200 in 2011/12 prices. In 2011/12, median household income was £23,200, having grown at an average rate of 2.2% per year over the intervening period. Although we are earning comparatively more in monetary terms, relative costs are way higher than back then.
There are consequences, though. Children are being forced to return to their parents’ homes to live. According to the ONS, since 1997,the number of ‘boomerangers’ has grown by 20% in the UK, as two million men and one million women between the ages of 20 and 35 have moved back in to live with mum and dad. For those baby boomers, mortgage repayments and subsidising their offspring’s education or living expenses take priority over food, household goods, clothing, ‘entertainment’ and retirement saving. Young adults aren’t saving money either – despite persistent government inducements – and they are having fewer children, later on in life. The annual cost of raising a child today is £3,762 pa, representing 14% of median salary (£26,100 pa). This has risen by 58% in the last decade, and it now costs a total of £230,000 to bring a child up to the age of 21!
Millennials are finding it harder than any generation before to establish themselves as independent adults, despite slight disposable income improvements since 2014. Unthinkable to post-war generations, it is now the case that a rewarding career, financial security, home ownership and a large, well-educated family are no longer givens. Almost half of today’s earners are not saving for retirement but hope their NI contributions (over 40 years) will be enough: the struggle to survive trumps the sense to save.
So, what does this mean for the younger generation? Well, it’s not all doom and gloom! Education and having a good understanding and strong grip of your finances is key here.
By ensuring you are aware of your own personal financial state and keeping a close eye on what is coming in and out of your accounts it becomes easier to see where things may be going wrong. In terms of saving for the future – work place pensions are now legally required to be provided by all business. This ensures that however small the contribution is, you are saving for the future. Other options include ISAs which a number of different banks offer. ISAs aid your savings and can help you develop good habits around saving and money management.
Finally, for the day to day, there are a number of excellent budgeting apps that help you plan for the future.
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