Over the course of the last few generations each generation has had more disposable income, relatively speaking, than the last. This trend could soon change though. Those currently in their 30's and 40's are expected to follow this pattern and be better off than their parents, but their children are, on average, expected to be less well off.
According to a PWC study, those born in 1993 will be 25% poorer when they retire than those born in 1963.
Those born in 1963 were able to buy a home earlier, at the age of 29 on average, and benefited from rapid increases in the value of their homes. They had no student debt and many are likely to be able to retire early.
Those born in 1993 are likely to have a higher real income but they are also likely to spend more. The PWC study states that it is expected they will be able to buy their first home by the age of 35 on average. This could be higher, though, as the average is already more than that now. Many of those born in 1993 will have student loans to pay off. They will also live longer so their retirement pot must last longer.
So why is the trend of each generation turning? The wealth gap between each generation is already narrowing in relative terms. Pensions and property could be two key factors.
Pensions are getting worse. Fewer people are paying into a pension fund at all, and this problem is increasing with people living longer. So while bigger pension pots are needed, pension contributions are actually going down. This is already a problem for some who have retired and will likely get worse in the future unless something is done to revert this.
Property has risen sharply in the last few decades. With each generation benefiting more, each generation has become wealthier than the last. It has been easier to obtain a mortgage than it is likely to be in the future. Many house prices have now got to a stage where they have become unaffordable to many young people so getting on the housing ladder is become harder. Increases are also likely to be less in the future so future generations may make less on the property market.
A current issue is that wages are not rising comparably to inflation. So things are costing more relative to what people are earning.
Each generation since world war two has been wealthier than the previous, but this difference is becoming less. The tide is turning and those born now are likely to be less well off as adults than their parents.
Can parents help protect their children from what could be a decline in living standard? The answer is yes, if parents have disposable income they could save it on behalf of their children. The best way to protect against inflation could be to invest it, for example in a Junior ISA. The Junior ISA is the new savings scheme for children, whereby parents can make investments on behalf of their children where gains will not be taxed.
Andrew Marshall ©
The Junior ISA is a good way to financially assist your children in the future.
Click here for the PWC study mentioned in this article.
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