Born in early 1980s? You're half as wealthy as those born in 1970s, says IFS

Poor and young

Lower home-ownership rates and less generous pensions have left those born in the early 1980s with half the wealth that those born a decade earlier had at the same age.

New research from the Institute for Fiscal Studies (IFS) has found that in their early 30s - people born in the early 1980s - have an average (median) net household wealth of £27,000 per adult – including housing, financial, and private pension wealth.

In contrast, the think tank says that those who were born in the 1970s had accumulated household wealth of £53,000 by a similar stage. It added that children of the 70s were themselves notably less wealthy than those born in the early 1960s.

It seems that those born in the early 1980s are likely to find it harder than their predecessors to build up wealth in housing and pensions as they age. They have much lower home-ownership rates in early adulthood than any other post-war cohort, and – outside the public sector – have much less access to generous Defined Benefit (DB) pension schemes than previous generations did at the same age.

Read Millennials and the great pension shortfall

Earlier this year, research conducted exclusively for Moneywise by financial provider Aviva found that six out of 10 parents have been asked directly by their adult children for money. Many baby-boomers are largely happy to help their grown-up children with money. But running the ‘Bank of Mum and Dad’ can be a minefield with some parents feeling under pressure to help their children. For more on this read our feature When the Bank of Mum and Dad has to say ‘No’.

“Young adults will find it harder to build up wealth than previous generations”

Other findings from the IFS research include:

  • Those born in the early 1980s were the first post-war cohort not to enjoy higher incomes in early adulthood than those born in the previous decade. This is partly the result of the overall stagnation of working-age incomes, but it also reflects the fact that the Great Recession hit the pay and employment of young adults the hardest.
  • Those born in the early 1980s have much lower home-ownership rates in early adulthood than any generation for half a century. At the age of 30, only four in ten of those born in the early 1980s were owner-occupiers, compared to at least five in ten (55%) of the 1940s, 1950s, 1960s and 1970s cohorts.
  • More first-time buyers now rely on Bank of Mum and Dad.
  • In their late 20s, renters born in the early 1980s spent nearly 30% of their net income on housing costs (largely rents) on average, compared to 15% for homeowners (largely mortgage interest). At the same age, renters and homeowners born in the 1960s both spent around 20% of their income on housing costs on average. Hence the decline in homeownership has been accompanied by a divergence in the costs paid by renters and homeowners.
  • Outside of the public sector, those born since 1970 have much less access to generous defined benefit pensions than previous generations did. In their early 30s, less than one in ten private-sector employees born in the early 1980s were active members of a DB scheme, compared to more than 15% of those born in the 1970s and nearly four in ten of those born in the 1960s. The recent introduction of ‘auto-enrolment’ means that younger cohorts have higher overall pension membership than their predecessors did but at much lower levels of generosity.

 

Andrew Hood, author of the report and a research economist at the IFS says: “By the time they hit their early 30s, those born in the early 1980s had about half as much wealth as those born in the 1970s did at the same age. Sharp falls in home-ownership rates and in access to generous company pension schemes, alongside historically low interest rates, will make it much harder for today’s young adults to build up wealth in future than it was for previous generations.”

 

Published: 30 September 2016
Last updated: 30 September 2016

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