Are you better off than your parents? In an attempt to answer this question, the Institute for Fiscal Studies (IFS) has been looking at wealth for the generations born between the 1940s and 1970s. It has come up with some interesting findings:
- The lack of growth in incomes of working age households in the last 10 years means those born in the 1960s and 1970s have not seen the rapid rise in income between the ages of 30 and 50 that their predecessors (including the baby boomers) did.
- For much of their earlier adult life, the 1960s and 1970s groups did have higher take-home incomes than their predecessors enjoyed at the same age. However, this was matched by higher spending, with the result that the extra income did not generate any extra saving than the earlier generations achieved.
- Those born in the 1960s and 1970s will find that their state pension (eventually) replaces a lower proportion of their income than for earlier generations, with the affect most noticeable at the higher end of the income scale. The cause is primarily the single-tier pension, due to arrive in 2016.
- It is taking longer to get on the housing ladder. 66% of those born between 1970 and 1976 owned a home at age 35, compared with 71% of those born in the 1950s and 1960s. In recent years, the homeownership rate among those born in the 1970s appears to have stalled at about two thirds. For the generation born in the 1940s and 1950s, the corresponding rate by the same age was 80%. The average age of second-time buyers has risen by 15 years (to 42) since the 1960s.
- The proportion of the younger groups who expect to receive an inheritance is far larger than the number in older groups who have done (or will do) so. 28% of those born in the early 1940s have received, or expect to receive, an inheritance against 70% of those born in the late 1970s. As the IFS says, “Inheritances look like the major potential reason why the later economic position of [groups] born in the 1960s and 1970s could yet turn out better than that of their predecessors, on average.”
So, if you are a baby boomer, for your children’s sake make sure your estate planning is up to date. If you are younger, start showing your parents some respect…