Which generation has it best: millennials, baby boomers or generation X?

Ahead of an intergenerational review by the Government, we explore which group has had it better than the rest.

The Government has been accused of operating a ‘granny state’ that benefits older and richer people at the expense of younger, poorer ones.

It has been worried enough by the rumblings of discontent to set up an enquiry into intergenerational fairness. But while the politicians deliberate, we can look at figures to try and suss out which generation really has an easier life.

We've taken three snapshots - one in 2014 (to see how Millennials were faring), one in 1994 (when Generation X reached adulthood), and one in 1974 (when the Baby Boomers were wrestling with young families). We have examined a number of aspects of their finances, to assess whether we really live in a nation of intergenerational fairness - and if not, who is losing out.

House prices

Housing costs are often used to demonstrate the gulf between the generations - and with good reason. According to a study by eMoov, back in 1974 the average property cost just £9,927. Even when adjusted for inflation that’s only £108,358. 

Over the following two decades, prices rose far slower than we are used to now, and in the early 1990s, they suffered a correction. It means that by 1994 the average house cost £68,032 (or £125,071 in today’s money).

Generation X, therefore, seem to be the winners when it comes to property, because from the mid-1990s, house prices began their relentless march upwards - until 2008. Despite a dip at that point, by 2014, the average house cost £186,544 (or £192,931 in real terms).

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Education and work

Not only do Millennials have a mountain to climb when it comes to saving for a property, but they also start out on the back foot. That's because they're carrying so much student debt.

Conversely, Baby Boomers enjoyed free university education and often received maintenance grants. When Generation X was at university, the maintenance grants were eventually supplanted by student loans.

However, they did at least still receive their education for free. All this changed in 1998 with the introduction of fees, which Millennials have had to pay. The younger they are, the more they've had to pay, so that those studying now may have to pay £9,000 a year in fees – with their living costs on top.

You could argue that at least they are receiving higher wages than previous generations to help them meet these costs, but the picture isn’t clear here either. To make comparisons easier we have adjusted for inflation. According to the ONS, gross weekly average earnings in 1974 were £478 when adjusted for inflation, by 1994 this rose to £575, and by 2014 it reached £580.

The paltry growth over the past 20 years is a reflection of the fact that real wages have actually been falling since 2008. 

Shopping

It’s not all bad news for Millenials though. They are reaping the benefits of technological innovations, which mean that the price of home technology has fallen dramatically. The eMoov study looked at games consoles and found that, in 1974, an Atari retailed at £61 (which adjusted for the RPI index of inflation is an incredible £666). By 1994, the Sony PlayStation retailed at the equivalent of £550, but by 2014, the PS4 cost the equivalent of £362.

At the supermarket, millennials are also benefitting from the intense competition among major supermarkets – and the discounters continue to push prices ever lower. Take a pint of milk for example. ONS figures show that in 1974 it would cost you 55p in real terms. By 1994 this was up to 66p, but by 2014 it was down to 51p. A dozen eggs meanwhile, has been falling in price since 1974 when it cost £3.49 (in today’s prices). Twenty years later the price was down to £2.46 (in real terms), and by 2014 it was down to £2.02.

Brands have similarly been under pressure to reduce their prices. The eMoov survey, for example, showed that a McDonalds Big Mac would have set you back 40p in 1974 - which is £4.37 when adjusted for inflation. This compared to the equivalent of £3.33 in 1994 and £2.78 in 2014.

Tax

Not every price is falling, however, and in some instances taxes have played their part. In 1974, for example, a pint of lager would have cost you 20p - or £2.18 in real terms. By 1994 this had risen to £2.54 in today’s money, and by 2014 it hit £3.30. It’s no wonder that so many pubs have closed down.

Millennials, overall, face a higher tax bill than previous generations. The ONS says the average tax bill in 2014 was £7,669 (adjusted for inflation), which is up from an inflation-adjusted £7,451 in 1994 and £6,894 in 1977 (the first year the ONS has figures for). Interestingly this isn’t due to a hike in income tax - as the average income tax take in 2014 was £4,899 (in real terms) - which is roughly what it was in 1977. Instead stealth taxes and tax on spending has grown.

Benefits, meanwhile, have also increased. In 1977, the average person received inflation-adjusted benefits of £3,811, while in 1994 they got £5,664 and in 2014 they were paid £6,252 - plus £118 in tax credits. This doesn’t, however, mean that life has improved dramatically for people on benefits, especially when you consider that an ageing population automatically means more people on benefits (through pensions etc) - which pushes the average up.

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Retirement

The figures so far, therefore, would seem to present a relatively balanced picture. However, all this changes when you compare the generations in retirement. Baby Boomers who were in work usually had a defined benefit (DB) final salary pension - which guaranteed them a generous percentage of their final salary every month in retirement. It’s widely considered the best, and most generous, pension around.

Legislation introduced in 1986 made it easier to introduce occupational defined contribution (DC) schemes – which offer a monthly contribution, but no guarantees over what you will get in retirement. As a result, younger generations are far more likely to be offered membership of these less generous schemes.

Generation X is divided into those who happened to start work with a company operating a DB scheme, and stayed put, and those who picked a company with a DC scheme, or moved around and ended up in DC. 

Those with a DB scheme face a similar retirement to Baby Boomers. Those in DC, however, are arguably the worst off of all the generations in retirement. Not only did they miss out on pension guarantees, but much of their career was before the introduction of auto-enrolment as well – which means many have no occupational pension at all.

Millennials, meanwhile, are overwhelmingly likely to be in DC schemes, but will spend more of their pension automatically enrolled into a scheme – so at least they will get something in retirement. Unfortunately for them, they also face getting their state pension far later than previous generations - and getting far less from the Government too.

Who has it better?

Once you factor retirement into the mix, therefore, it’s hard to argue that any other generation can rival the Baby Boomers, with their free education and grants, affordable property, generous company pensions, universal benefits and guarantees on their income.

Ensuring inter-generational fairness would therefore mean boosting incomes and pensions for younger generations, or taking an axe to pensioner benefits.

We will have to wait to see whether the Government enquiry will come to the same conclusion.

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