I remember when birthday cards for 21-year-olds came with a picture of a key on them. The key represented the rite of passage young adults would go through – buying their first home
Ha! That world, when young adults could afford homes, now seems so long ago.
Everything, from the home we have to the job we do and the amounts we can save, is affected by the economy we live in.
If we are unlucky enough to enter the workforce during a recession, we’re likely to earn less across our whole career than someone coming before or after.
When we try to buy a home we’ll likely hit 34 before we manage it, and that’s only if we can stump up around £212,000, and considerably more in some areas. Forty years ago, a home would have cost more like £20,000 (£102,000 in today’s money).
Savers today are seeing their nest eggs grow much more slowly than previous generations because we happen to be living through a time of low interest rates. Today the average interest rate on a one-year fixed savings account is 0.96% – 20 years ago it was more than five times that, at 5.03%.
If we start work today, we’ll almost certainly have a pension. But that’s thanks to relatively recent legislation that forces employers to offer them – in years past, whether you had a generous gold-plated one or none at all would have been pot luck.
The thought that so much is out of our control can feel disempowering. But understanding the forces at play can put us back in the driving seat.
Here’s one example. We live in an ageing society, where a falling number of working-age people are supporting a growing number of older people. Over time, taxes collected will be stretched that much more thinly, which will mean the support the state is able to offer will inevitably fall. The state pension may be cut back, for example, or people may be increasingly responsible for their own social care. I think it’s a pretty safe bet that the Freedom Pass, which offers free transport for pensioners, will have been phased out long before I’ll be able to claim mine. Still, knowing this means we can plan ahead – and make sure that we can we pay into our own pension schemes so we’re less reliant on the state.
Understanding the wider economic issues that are at play can also empower us to question the decisions that are made on our behalf.
When a politician tells us that the pay of teachers, nurses and policeman must be frozen or capped to help ‘balance the books’, an understanding of the theory can help us question whether or not we agree with that decision.
It will be that much harder for politicians to justify social decisions as being ‘best for the economy’ when more of us feel comfortable talking about and understanding the economic issues in hand.
It remains true that home ownership keeps wriggling further and further out of reach for many – at this rate, maybe keys could make a comeback on birthday cards for 40-year-olds. But if we understand what’s driving prices up, we can understand if our government is making the situation better or worse and then, informed, hold them to account.
This column also appeared in a Manchester Evening News supplement for the charity Economy.
Post The editor, Moneywise, 8 Devonshire Square, Office 03W112, London EC2M 4PL
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