The generation born in the early 1980s are currently half as wealthy as those born in the early 1970s were at their age, according to a new study.
The Institute of Fiscal Studies on Friday released a report on intergenerational wealth and income, concluding that there is an increasing wealth divide created by rising house prices and worsening pension offerings.
People born in the early 1980s who are in their 30s today have an average household wealth of £27,000, compared to £53,000 for people born in the 1970s when they were in their mid-30s.
The study found that 80s kids — Generation X mostly — “have much lower home-ownership rates in early adulthood than any other post-war cohort, and – outside the public sector – have much less access to generous Defined Benefit pension schemes than previous generations did at the same age.”
The big reason for the wealth disparity is rising house prices and stagnant wage growth in the recent decade making it harder to get on the housing ladder. Only 40% of the early 1980s generation currently own their own house, compared to 55% for the 1970s generation when they were the same age.
The decline of defined benefit pension scheme — the gold standard for retirement — also contributes. (You can read more about why companies are phasing out DB pension schemes here.)
The IFS says: “Looking first at the comparison between the 1970s and early 1980s cohorts, it is clear that the wealth differential between the two cohorts at similar ages is driven by the lower net property wealth of the younger cohort – both private pension wealth and financial wealth look similar across cohorts when they are compared at similar ages.”
Part of the reason Generation X are struggling to buy a house is because of rising renting costs. The early 1980s babies that rent currently spent 30% of their income on this cost, compared to 15% for the generation before.
Stagnant wage growth, partly due to the 2008 crash, means that the generation born in the early 1980s are also the first post-war generation not to enjoy higher incomes than the previous generation at the same point in life.
Andrew Hood, an IFS economist who coauthored the report, says in a statement: “By the time they hit their early 30s, those born in the early 1980s had about half as much wealth as those born in the 1970s did at the same age.
“Sharp falls in home-ownership rates and in access to generous company pension schemes, alongside historically low interest rates, will make it much harder for today’s young adults to build up wealth in future than it was for previous generations.”
The report chimes with a recent study by the Resolution Foundation, which found that there has been a fundamental shift in the way the housing market works to the detriment of the young. Property and rent price growth is outstripping wage growth, making home ownership increasingly unaffordable for the young.