Financial reality for people born in the 1960sPosted on: 08 January 2014 by 50connect editorial
The Euro crisis may be waning but the pressure on the finances of the UK's over 50s and 60 shows now sign of abating.
The family reunion over the Christmas holidays is for many the highlight of the year. No matter how bad and difficult the previous 12 months, getting the family together for a few days is more than adequate compensation.
Yet, increasingly, it’s not a matter of those few days around Christmas that ex-schoolchildren and ex-university students spend time at their parents’ property. They don’t leave once the decorations come down because, as well as being their parents’ home, it’s still their home, too.
Various studies put the average age of a first-time buyer these days between 28 and mid-30s. A recent study put the average age of first-time London buyer as 52! (1)
However, a more interesting statistic to emerge from the UK’s fascination with property ownership is that there is now a 14-year gap between the first and second property purchase. At the end of the 1960s, a property owner would only want to wait on average three years to move up the ladder.
Whatever the reasons, and there are many – the recession, unemployment, increasing house prices, tighter lending criteria – this shows there has been a major lifestyle change for both the parents and their children in the space of one generation.
Such a change can have a dramatic impact of the finances, and the financial planning of these two generations. Money may have been invested and plans made for downsizing once the children had gone. Now those plans could be put on hold for five, even ten years.
Parents could find that their pension options reduced at that stage because they are much near retirement age than originally anticipated – and many lenders have reduced the maximum age of lending in recent times, as well as removing interest-only mortgages on your main residence.
That is why independent financial advice has never been more important or necessary. It’s not just personal circumstances that change an individual’s financial landscape; once-accepted national and generation trends can no longer be taken for granted.
Many were taken aback when a recent report from the Institute for Fiscal Studies declared that “People born in the 1960s and 1970s ‘poorer’ than previous generations.” (2)
The report analyzed the economic circumstances of individuals born between the 1940s and the 1970s.
Those in their 40s and 50s are less likely to own a home than those 10 years older. Their incomes will be no higher and crucially, their private pensions are smaller. The only chance of being better off than their parents in retirement will be if they inherit money.
However, there is still hope. Only 28% of those born in the early 1940s received an inheritance – 70% of those born in the late 1970s now expect a legacy.
Not only do today’s parents face the prospect of having to budget for looking after their children for much longer in the family home, but also those children are likely to require additional financial help getting on the property ladder and beyond. That will increase financial pressures on the parents, who will retire later and live longer than their predecessors.
Governments of all parties are notoriously slow in implementing financial changes that will assist and reflect these new trends.
That is not true of consumers; hence the constant promotions and marketing by supermarkets in national newspapers and television. Flip through any newspaper to see how heavily they rely on the advertising of Tesco, Sainsbury’s, Waitrose, Asda, Morrisons, Lidl and the like.
Customers vote with their feet and their choice of supermarket. Over the past few years, there has been a switch away from organic and branded products because of the recession. Clearly, we are all happy to save the planet when we can afford to.
The supermarkets are happy to pander to this frugal behaviour. No matter how small, your Tesco bill will be joined by another slip of paper announcing “TESCO PRICE PROMISE - Today you save £x.xx – at Tesco compared to shopping at Asda, Sainsbury’s and Morrisons.” (3)
That price promise is “you won’t lose out at Tesco”. If only financial institutions and banks offer the same service!
Recent high-profile criminal trials have left many shaking their heads and wondering at the bizarre problems of not living in the real world. Especially when it comes to finance and trusting others, not financial advisers but those working for you, with your money.
Don’t give the wealthy too hard a time. It emerged from the Chancellor’s autumn statement that the top 1% of UK taxpayers now pays 30% of all tax. That equates to the 300,000 earning more than £160,000. (4)
Strangely, when the top rate of tax was 83% when Margaret Thatcher became Prime Minister in 1979, that 1% contributed just 11% of the tax paid. Their contribution has been steadily rising. When England won the Rugby World Cup in 2003, the 1% paid 20.8% - and now it has reached 29.8%.
There is always a price to pay. As ever, there will be a tightening of belts after the Christmas excesses as we pay off the bills. But, after five years of the recession and austerity, that is something we are used to.
1 – Post Office Research
2 – Institute for Fiscal Studies
3 – Tesco Price Promise
4 – The Sunday Times – 17th November 2013
The value of shares and investments can go down as well as up. Your home may be repossessed if you do not keep up repayments on your mortgage.
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