Every generation thinks they have it tough, but the evidence shows that today’s millennials are getting a raw deal. That is ultimately a political choice.
A report compiled by economists at the Resolution Foundation has laid out the extent to which Britain’s millennial generation (defined here as people born between 1980 and 2000) are worse off than previous cohorts were at the same stage of life.
For example, the authors found that millennials born in the late 1980s earned, on average, 8% less at the age of 30 than their counterparts from Generation X did at the same age (Generation X is defined as people born between 1966 and 1980 and, therefore, now aged between 43 and 57). The audit also found that the typical weekly pay of graduates aged 30-34 fell by 16% in real terms between 2007 and 2023 (though equivalent non-graduate pay fell by only 6%). Overall, it found that the long-term effects of the financial crisis have left British millennials struggling to catch up with the living standards of older generations.
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The authors contrasted this with the situation in the US, where their American counterparts have closed the gap much faster. In the US, millennials in their early 30s were earning 21% more, in real terms, in 2021 than people in the same age group were in 2007. In the UK, incomes were still 1% lower for this group.
“Young people across advanced economies were hit by the financial crisis, putting a stop to decades of progress,” says the report’s co-author, Sophie Hale. “Fifteen years on, this ‘crisis cohort’ is no longer young.” Many US millennials have bounced back, but their counterparts in Britain still bear “economic scars as they approach middle age”.
What are the root causes?
Broadly, it’s a function of the stagnant UK economy and low productivity that have limited economic prospects for pay and income progression, while what growth there has been has favoured older generations.
It’s also the result of policy decisions with age-specific effects, according to the report. For example, the triple-lock on state pensions has helped retirees, but there have been explicit cuts to working-age benefits and a switch from RPI to the (usually lower) CPI inflation measure to calculate rises.
Nor is the intergenerational gap just about current incomes. In terms of overall wealth, millennials are not keeping up with previous cohorts.
Total net wealth in the UK has surged from about three times GDP in the mid-1980s to more than seven times in 2020, growing by £5.9trn. Some 73% of that increase has been accumulated by people born between 1956 and 1975 (people now in their late 40s to late 60s). Those generations are richer and younger than previous cohorts, but the next generation has significantly missed out. For example, the average Briton in their early 60s in 2018-2020 had nearly £170,000 more in assets than counterparts of the same age 12 years earlier, before the financial crisis. But the average person in their late 30s had almost £30,000 less.
According to the Centre for Policy Studies analysis, the share of national wealth owned by over-55s has risen 11 percentage points since the financial crisis. The share owned by under-55s has fallen by the same amount.
Only 28% of millennials own their homes, vs 51% in 1989.
The property gap
The main driver is the long property price boom, which has boosted the wealth of homeowners while locking many younger people out of home ownership.
At the start of the century, 67% of households aged 30-34 were homeowners, but by 2021 this figure had fallen to 47%. Taking the wider 25-34 cohort, the proportion that owns their homes is currently just 28%, down from 51% in 1989. Pensioners now have higher disposable incomes than working households, on average, and although one in five lives in poverty, one in four lives in a household with assets of more than £1m.
Some argue that an era of broadly higher interest rates might help to smooth out generational inequality by puncturing asset prices. On the other hand, the burden of higher mortgage rates will disproportionately hit younger working people (two-thirds of those who own their homes outright are retired).
The generation gap is real
Every generation thinks they have it tough, says The Economist. Houses might have been cheap in the 1960s, but “petrol had lead in it, men dropped dead in their 60s and women couldn’t open a bank account in their own name”. People paying mortgages in the early 1990s struggled with rocketing interest rates. And it is normal for people to get wealthier as they get older.
But it really is true that some generations get a better deal than others. Someone born in 1956 will pay (on average) about £940,000 in taxes over their lifetime but receive state benefits of around £1.2m. Someone born in 1996 will get less than half that from the state – and barely more than someone born in 1931, a decade before the term “welfare state” was first popularised.
“A fundamental part of the social contract has broken down” and today’s generation of 30- and 40-year-olds are getting a raw deal.
Potential solutions to close the gap
A second report published this week from the Centre for Policy Studies is full of proposals on how to close the gap between young and old.
These include encouraging home ownership through planning reforms and supporting long-term, fixed-rate mortgages and gradual ownership structures. They also include cheaper childcare, reforming the student loan system and a range of reforms to pensions, social care, and the NHS.
Ultimately, the drift towards greater generational inequality is a choice, says The Economist. The fact that Britain’s homes are small and expensive “is not a law of nature, but a choice of successive governments”. The fact that our tax system is tilted towards income, not wealth, is a policy decision. “The government could choose differently.”
This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
