Repairing the contract between the generations

Article posted: 4th July 2012

A recent edition of the Independent highlighted on its front page that the old have never been so rich and the young have never been so comparatively poor at least in living memory. Of course there are many exceptions in both classes, but the generality is true, even if we don’t often pause to think about it. I have been reading a book called ‘The Jilted Generation’ by Ed Howker and Shiv Malik – both of them 29 year olds – and they make a compelling if rather embittered case that financial planners would do well to consider.

The case is as follows. The baby boomers who are now coming up to retirement have done extremely well by and large. Those of us who went to university were handsomely supported; our early careers were well paid, houses were relatively cheap when we bought them and we got the benefit of mortgage interest relief; lots of us are the last members of DB pensions and we inherited property from our parents to ease us into the old age we are now contemplating.

In contrast, the young are now corralled into higher education for which they will have to pay a fortune, find it very hard to get a job – even an unpaid one – are very badly paid compared to their elders and now find that a home will cost about 4 times their earnings – rather than the average of about 2.5 times their earnings before the 90s. And when did you last see a final salary pension for a new employee outside the public sector? And to crown it all, most of us baby boomers seem destined to live forever – or at least for thirty or forty years of retirement – by which time any inheritance will be too late for our children to enjoy.

This analysis should inform our financial planning and especially our estate and family based planning. Parents and grandparents who can afford it should be aiming to help the younger generations with lifetime gifts. Grandparents should be aiming to leave money to grandchildren. Saving to help young family members in their 20s and 30s should be a financial planning aim. House purchase, business capital and possibly the costs of higher education should be primary aims for financial planning. Life will be tough for those without family support.

Report by Danby Bloch, Editorial Director – Taxbriefs 29 Jun 2012

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