Intergenerational inequality growing on incomes, housing costs and inflation

Numerous reports are showing how generation X and baby boomers have it much better than millennials.

A number of reports this week have highlighted how much better the nation’s older generations have it when compared with millennials (born between 1981 and 2000).

Generation X (born between 1966 and 1980) and baby boomers (born between 1946 and 1965) have enjoyed bigger incomes when they were working, cheaper housing, and lower inflation, according to the research.

All this means that intergenerational inequality is growing at an astonishing rate.

Income gap

Millennials risk becoming the first ever generation to earn less than their predecessors over the course of their working lives, research by the Resolution Foundation has found.

People aged 15-30 have been hit hardest by the recent pay squeeze. As a result, a typical millennial has earned £8,000 less during their 20s than someone from the previous generation – generation X.

“Generational inequality risks becoming a new inequality for our times, and nowhere is that clearer than on pay,” says Torsten Bell, director of the Resolution Foundation.

“We’ve taken it for granted that each generation will do much better than the last – earning more and enjoying a higher standard of living. But that approach risks looking complacent given the realities of recent years and prospects for the future.”

Baby boomers are expected to have earned £740,000 between the ages of 16 and 64. Generation X is expected to earn 21% more at £835,000 but millennials could earn as little as £825,000 making them the first generation to earn less.

“Far from earning more, millennials earn £8,000 less during their 20s than the generation before them,” says Bell.

“The financial crisis has played a role in holding millennials back, but the problem goes deeper than that. Even on optimistic scenarios they look likely to see much lower generational pay progress than we have become used to, and there is even the risk that they earn less over their lifetimes than older generations, putting generational pay progress in reverse.”

The report reveals that people aged 65-74 hold more wealth than the entire population aged under 45 – a group that is more than twice the size.

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Living costs

To add to the disparity in wealth between the generations, younger people face higher living costs.

The combination of falling home ownership and the rising cost of renting means millennials will have spent £44,000 more on rent by the time they reach 30 compared to the baby boomers.

Baby boomers were the “main beneficiaries of the growth in home ownership over the 20^th century”, according to the report, with 63% of baby boomers owning their own home by the age of 30. In contrast only 42% of millennials will own their home by the time they are 30.

“The nation’s housing crisis is perhaps the most visible example of growing inequality between generations,” says Laura Gardiner, senior policy analyst at the Resolution Foundation. “Young people today are paying a heavy price for decades of falling home ownership. Britain’s continuing failure to build enough homes means that unless we change course the struggle of young people to own their own home is only going to get worse.”

The number of baby boomers who own buy-to-let property is also adding to the wealth inequality. The older generation earn 50% of the nation’s rental income.

Inflation

To add to their woes, the under 30s face far higher inflation than any other generation. This is due to the fact the younger generation spend more of their money on high inflation items such as alcohol.

The real inflation level for millennials is 0.9%, according to the research by Fidelity International. In contrast it's just 0.3% for over 65s and 0.4% for both generation X (defined as 30-49 year olds in the study) and baby boomers (50-64 year olds).

The lower levels of inflation for over 65s is down to the group spending more on groceries and non-alcoholic drinks, which allows them to benefit from deflation driven by the ongoing supermarket price war.

“Supermarket price wars are keeping the cost of living down for the over 65s who ring up a bigger portion of their income at the tills,” says Richard Parkin, head of retirement at Fidelity International. “The over 65s are seeing their spending power reducing at a slower rate than other age groups.”

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