I’ve been writing about inter-generational fairness on the blog for absolutely ages (well, 5 – 6 years, but that’s long enough in my book!)
And it’s an idea that has gradually seeped into the mainstream and become one of hottest topics of the general election campaign. Politicians are now debating whether pension and benefits guarantees for the over 65s are being funded at the expense of younger taxpayers, with the triple lock and universal winter fuel allowance likely to be burned at the altar of making public finances more sustainable if Theresa May wins the election.
But a new buzzword is coming. “Intra-generational” fairness refers to financial equality between members of the same generation. And there are signs that a major prosperity gap is opening up between millennials who can rely on wealthy parents – and those who cannot.
A recent tweet from the FT’s pensions correspondent (and recently award-winning) Jo Cumbo caught my eye. She highlighted the fact that 1.9 million pensioners live in poverty and only half of the 65-plus population are even eligible to pay income tax. It led Annie Shaw of respected website Cash Questions to point out the parallels with the younger generation, where some people have money “and others don’t”. It begged the follow-up point from Jo that we must avoid the urge to lump people into one homogeneous group, regardless of age. That then prompted the following exchange;
@CashQuestions Agree & that's why I think the intergenerational debate is fueling the wrong discussion; intragenerational inequality just as much an issue.
— Josephine Cumbo (@JosephineCumbo) May 9, 2017
This all stands to reason. But we must not forget that inter-generational inequality has actually directly caused intra-generational fairness. The happy accident that has befallen many baby-boomers, where property valuations and final salary pension schemes have often exceeded their wildest expectations, can be starkly contrasted with the limited financial possibilities facing all but a minority of millennials today.
Young people today have the illusion of choice. The ability to do and buy so much for the here and now, but the impossibility of putting down roots for the long-term. The availability of credit, the superficial flexibility of renting, the demise of truly bountiful pensions in the workplace, a limitless panorama of consumerism, the futility of saving into anemic accounts with next-to-no interest…all are directing young people away from the standard (some might say old-fashioned) markers of prosperity towards a new, uncertain definition of what it means to be successful and secure today. It’s a seismic shift that’s still in its very early stages and we have no idea what the long-term outcome of this will be. But I suspect it won’t be good.
Caveat time. There are cases of baby-boomers entering their golden years with a lower pension than they could have reasonably expected, as we have seen with the so-called WASPI women. Some have got some serious debt baggage going on, some are facing astronomical care bills should they find it impossible to stay in their own home later in life.
It is essential that we don’t neglect or forget these cases. But that doesn’t mean we can’t and shouldn’t continue to talk about general macro-economic trends that have largely supported baby-boomer fortunes – and have dented ours. I don’t want to dwell on those trends necessarily today, as there has been much wider discussion of this on the Young Money Blog which I encourage you to seek out. Right now I want to concentrate exactly on how young horizons look so different now compared to times gone by – and why the millennial wealth gap could end up being far more pernicious than people are currently anticipating.
My parents could have got on the housing ladder at a relatively young age off their own bat without struggling too much. And they did. They could not have known that this would spark a chain of fortuitous events that would secure a level of affluence that their post-war parents never imagined. But it did.
Sure, properties weren’t handed to them on a plate looking like show homes, but that was the whole point of moving up the ladder – at least they could afford the first rung. Paying down mortgages when interest rates went skywards can’t have been easy, but incomes and lifestyles were such that shedding the debt was eminently do-able.
So long as you did the financial equivalent of turning up – i.e. saving some of your gradually increasing pay packet, spurning debt and paying off your mortgage when you had the chance – your passage through life would be reasonably assured. That is certainly not a given for young people today, and the fact remains that most of us do have the same departure point for that journey – namely the chance to buy a reasonably priced home on our own.
So any young person who makes an assessment that property ownership could well be the springboard to bigger and better things in their lives, even if it involves a bit of hunkering down in the short-term, is almost certainly leaning on their parents to make it happen. And there could be a variety of reasons why BOMAD can’t or won’t cough up. Younger parents didn’t have quite the same window of opportunity in the housing and pensions gold-rush, so they aren’t necessarily sitting pretty. If you’re a WASPI woman, you could well argue that the government has deprived you of money that could have been put towards your child’s house deposit.
Maybe some parents haven’t paid off mortgages, have taken on too much debt, have suffered an unfortunate pensions or investments mishap or have made costly decisions around their parents’ care that seemed unavoidable. Maybe they’re not sold on property as an investment for their children today. Maybe they have a misguided notion that everything should be like the 1960s again and young people should make their own way in the world without any help whatsoever. And then there are the families where these conversations just don’t occur, whether it’s because of estranged relationships or just poor communication. And what about those young people whose parents have died, or who have disabilities or various problems that are not their fault but nonetheless undermine their ability to help?
All this means that we’re basically at the mercy of our parents (if we’re lucky enough to have them). And we’re not just banking on their wealth, but their financial attitudes, our relationships with them and the circumstances that they find themselves in. The upshot is that the debate is no longer about the haves and the have-nots. It’s about the “have-helps” and “have-no-helps”. Recent research from L&G found that the Bank of Mum and Dad will lend their children £6.5 billion to fund property purchases this year, with the firm highlighting how BOMAD is now one of the biggest mortgage lenders in the UK.
Maybe I’m out of touch. Are young people as obsessed with property as the older generations? With a less pronounced sense of local and familial identity, nomadic renting has (to some extent) become the norm. But many of us can’t help but crave the financial AND psychological benefits afforded by having a home, particularly in such a bewildering epoch of change and uncertainty. Then there’s the tantalising prospect of stopping the rent drip once and for all so we can put our money into more useful things. We at least want the choice, right? Is that so much to ask for?
Seemingly so. I have heard it said more than once that young people now have an “entitled” attitude to property in a way that their parents didn’t. Perhaps – but what if this is due to our parents starting out their lives with modest expectations, only to gain such a tremendous amount?
It can’t help but have the opposite effect on the next generation; we expect so much, yet have a stake in so little.
What do you think? Tweet @ionayoungmoney or leave a comment below…