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30-year-olds have half the wealth of 40-year-olds

30-year-olds have half the wealth of 40-year-olds

Category: Money

Updated: 30/09/2016
First Published: 30/09/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

As many people born in the early '80s may know all too well, new findings from the Institute for Fiscal Studies (IFS) have revealed that these early 30-year-olds now have only half the median net household wealth as people born in the '70s.

The figures show that median household wealth, which includes a person's housing, financial and private pension wealth, currently stands at £27,000 per adult for those in their early thirties, while it stands at £53,000 for early 40-year-olds. This is the first time that a post-war cohort has not enjoyed a higher income in early adulthood compared with those born in the previous decade.

Just managing

One of the obvious reasons for this discrepancy is the financial crisis, with the younger generation bearing the brunt of a 13-year income squeeze. This, combined with rising housing costs and other financial pressures, has resulted in the Prime Minister pledging to focus particularly on 'just managing' families from this generation in her first statement as PM.

Indeed, a report by the Resolution Foundation has found that there are six million 'just managing' families spread across the UK. These families have at least one person in work, more often than not full-time, are less likely to have a degree and are under-represented in higher paying jobs, meaning that they often have to rely on welfare especially to help cover the cost of children. Given recent cuts in welfare support for working families and stagnating incomes, it is no surprise that over two-thirds of 'just managing' families have less than a month's income in savings to fall back on.

Generation rent

The report further found that these families spend 24% of their income on housing, with the increasing cost and the decreasing likelihood of homeownership for this generation combining to make their after-housing incomes lower than comparable 'just managing' families in 2002. In fact, a couple aged 35 with two children and both in full-time work now earns a median net income of £21,450 compared with £21,980 in 2008, while homeownership for families fell to 26% in 2015 from 59% in 1995.

And it's not just families who are feeling the strain. The IFS report revealed that those born in the early '80s have lower homeownership rates than any other generation for half a century, at 40% overall compared with at least 55% for the '40s to '70s cohorts. This has a significant impact, as the cost of renting has gone up while the cost of homeownership has gone down. To illustrate, renters born in the early '80s spent nearly 30% of their net income on housing costs (largely rent) when they were in their late twenties, compared with 15% for homeowners. Those born in the '60s meanwhile spent around 20% of their income on housing regardless of whether they were renting or owning.

Pensions have also been affected, with less than 10% of private-sector employees in their thirties being active members of a defined benefit scheme, down from more than 15% of those born in the '70s and nearly 40% of those born in the '60s. While auto-enrolment has meant that younger people have higher pension participation rates, these workplace pensions tend to be far less generous than those that came before.

What can be done?

This all means that people in their early thirties need to be more savvy than the generations that came before them, in terms of keeping a close eye on their pension pots, looking for the most competitive mortgages to realise their homeowner dreams and profit from the current low mortgage rates, and setting up savings accounts to be able to make up for their lack of wealth in later life.

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