Gen Y actually might be poorer than their parents

More spending and less saving means no increase in wealth for the young in 25 years.

One of the most notable aspects of Britain's austerity drive is the generational inequality with which it has been applied. The best example of that is the difference in the government's approach to pre- and post-retirement benefits. The former have been put in a double bind to keep them low, rising at just 1 per cent a year or the rate of increase in CPI, whichever is less. The latter have been "triple-locked", ensuring that they rise at the higher of inflation, wage inflation, or 2.5 per cent.

There's a real reason to complain about that, given that young people have already taken an enormous hit with soaring youth unemployment, a tripling of tuition fees and the removal of EMA. Not to mention the raising of the minimum age at which you are no longer expected to houseshare from 25 to 35, the below-inflation increases to the minimum wage, and the increase in the pensionable age in the future.

But occasionally, the concerns crystallise into a specific phrasing: "this generation will be the first to be poorer than their parents." That is something I have real trouble with, for the simple fact that most of the history of the last 30 years—or 20, or 40, or whatever we take a generational difference to be—there has been growth. Take a look:

Obviously, GDP is not equivalent to personal income; and as I've written elsewhere, for it to be a real comparison, we'd have to take into account population growth, wage stagnation, and issues of distribution.

Nonetheless, by the standard measure, the British economy is over twice the size it was when my parents were my age. There would need to have been an enormous transfer of wealth from the young to the old to overcome the prima facie belief that I am richer than they were. Indeed, you don't have to look far to realise why that might be the case. In 1982, you literally could not have bought—no matter how rich you were—the magic slab of glass and aluminium that connects to all the world's knowledge that I keep in my pocket and moan when I forget to charge it. Technology goes a long way.

But it seems that that prima facie impression really might fall apart if you look into the data. A new study, looking into the American situation, gives us reason to doubt it. The researchers, from the Urban Institute, write that:

Average household wealth approximately doubled from 1983 to 2010, and average incomes rose similarly. For many, the American dream of working hard, saving more, and becoming wealthier than one’s parents holds true. Unless you’re under 40.

Today, those in Gen X and Gen Y have accumulated less wealth than their parents did at that age over a quarter-century ago. Their average wealth in 2010 was 7 percent below that of those in their 20s and 30s in 1983.

In the US, the net worth of those aged 47 or older is roughly double that of someone the same age 27 years earlier. But the net wealth of someone aged less than thirty is no greater than it was 25 years ago.

It's important to note that this is using wealth in the strictest sense possible: net value of owned assets (though it does account for inflation). It's not a discussion of the relative size of the social safety net, or the difference between the quality of consumer goods now and then. As a result, the main driver of the discrepancy is spending and borrowing habits. If younger people today are forced to spend a higher proportion of their income—or borrow even more—than they did 25 years ago, that will show up as a loss.

As, indeed, it does. The authors attribute the difference to the "Great Recession", and particularly the housing crash, which had a bigger impact on net wealth the more of a mortgage you had outstanding. And for those of us too young in 2008 to own a home, the fact that we are now locked out the housing market through crippling deposit requirements also impacts on our wealth, as we are forced to continue renting rather than building equity.

Intergenerational transfers mean that that's a trend which can't last forever. Eventually, old people die. It's kind of a thing they've got going. But even that means that young people are only likely to amass a significant chunk of wealth when their parents die, which may be quite late in life indeed. The impoverished 30-year-old is unlikely to be satisfied by that.

But the really interesting thing is that the young were falling behind even before 2008. The authors explain why:

Factors likely include their reduced job prospects, lower employment rate, and lack of educational attainment that was higher than previous generations.

As for possible solutions, they suggest increasing the amount spent on education, boosting state pension contributions for the young, and subsidising new home-ownership to a much greater degree.

To be clear, I'm not sure if the findings hold for the UK; but many of the same trends are at play, and are exacerbated by the imposition of austerity targeted mainly at programmes used by the young. It may actually be the case that the young of today actually are poorer than their parents.

Some young people—well, Adam and the Ants—in 1981. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Senior Labour and Liberal Democrat politicians call for a progressive alliance

As Brexit gets underway, opposition grandees urge their parties – Labour, Lib Dems, the SNP and Greens – to form a pact.

A number of senior Labour and opposition politicians are calling for a cross-party alliance. In a bid to hold the Conservative government to account as Brexit negotiations kick off, party grandees are urging their leaders to put party politics to one side and work together.

The former Labour minister Chris Mullin believes that “the only way forward” is “an eventual pact between Labour, the Liberal Democrats and the Greens not to oppose each other in marginal seats”. 

“Given the loss of Scotland, it will be difficult for any party that is not the Conservative party to form a government on its own in the foreseeable future," Mullin argues, but he admits, “no doubt tribalists on both sides will find this upsetting” and laments that, “it may take three or four election defeats for the penny to drop”.

But there are other Labour and Liberal grandees who are envisaging such a future for Britain’s progressive parties.

The Lib Dem peer and former party leader Ming Campbell predicts that “there could be some pressure” after the 2020 election for Labour MPs to look at “SDP Mark II”, and reveals, “a real sense among the left and the centre-left that the only way Conservative hegemony is going to be undermined is for a far higher degree of cooperation”.

The Gang of Four’s David Owen, a former Labour foreign secretary who co-founded the SDP, warns Labour that it must “face up to reality” and “proudly and completely coherently” agree to work with the SNP.

“It is perfectly legitimate for the Labour party to work with them,” he tells me. “We have to live with that reality. You have to be ready to talk to them. You won’t agree with them on separation but you can agree on many other areas, or you certainly should be trying.”

The Labour peer and former home secretary Charles Clarke agrees that Labour must “open up an alliance with the SNP” on fighting for Britain to remain in the single market, calling it “an opportunity that’s just opened”. He criticises his party for having “completely failed to deal with how we relate to the SNP” during the 2015 election campaign, saying, “Ed Miliband completely messed that up”.

“The SNP will still be a big factor after the 2020 general election,” Clarke says. “Therefore we have to find a way to deal with them if we’re interested in being in power after the election.”

Clarke also advises his party to make pacts with the Lib Dems ahead of the election in individual constituencies in the southwest up to London.

“We should help the Lib Dems to win some of those seats, a dozen of those seats back from the Tories,” he argues. “I think a seat-by-seat examination in certain seats which would weaken the Tory position is worth thinking about. There are a few seats where us not running – or being broadly supportive of the Lib Dems – might reduce the number of Tory seats.”

The peer and former Lib Dem leader Paddy Ashdown agrees that such cooperation could help reduce the Tory majority. When leader, he worked informally in the Nineties with then opposition leader Tony Blair to coordinate their challenge to the Conservative government.

“We’re quite like we were in 1992 when Tony Blair and I started working together but with bells on,” Ashdown tells me. “We have to do something quite similar to what Blair and I did, we have to create the mood of a sort of space, where people of an intelligent focus can gather – I think this is going to be done much more organically than organisationally.”

Ashdown describes methods of cooperation, including the cross-party Cook-Maclennan Agreement on constitutional reform, uniting on Scottish devolution, a coordinated approach to PMQs, and publishing a list 50 constituencies in the Daily Mirror before the 1997 election, outlining seats where Labour and Lib Dem voters should tactically vote for one another to defeat Tory candidates.

“We created the climate of an expectation of cooperation,” Ashdown recalls. Pursuing the spirit of this time, he has set up a movement called More United, which urges cross-party support of candidates and campaigns that subscribe to progressive values.

He reveals that “Tory Central Office are pretty hostile to the idea, Mr Corbyn is pretty hostile to the idea”, but there are Conservative and Labour MPs who are “talking about participating in the process”.

Indeed, my colleague George reveals in his report for the magazine this week that a close ally of George Osborne has approached the Lib Dem leader Tim Farron about forming a new centrist party called “The Democrats”. It’s an idea that the former chancellor had reportedly already pitched to Labour MPs.

Labour peer and former cabinet minister Tessa Jowell says this is “the moment” to “build a different kind of progressive activism and progressive alliance”, as people are engaging in movements more than parties. But she says politicians should be “wary of reaching out for what is too easily defined as an elite metropolitan solution which can also be seen as simply another power grab”.

She warns against a “We’re going to have a new party, here’s the board, here’s the doorplate, and now you’re invited to join” approach. “Talk of a new party is for the birds without reach and without groundedness – and we have no evidence of that at the moment.”

A senior politician who wished not to be named echoes Jowell’s caution. “The problem is that if you’re surrounded by a group of people who think that greater cooperation is necessary and possible – people who all think the same as you – then there’s a terrible temptation to think that everyone thinks the same as you,” they say.

They warn against looking back at the “halcyon days” of Blair’s cooperation with the Lib Dems. “It’s worth remembering they fell out eventually! Most political marriages end in divorce, don’t they?”

Anoosh Chakelian is senior writer at the New Statesman.