The Generation Divide

The information provided in this article was accurate at the time of publishing and should be read in the context of the date it was published. Views in this article are those of the author alone and do not necessarily represent the view of Scottish Friendly.

Scottish Friendly’s Disposable Income Index looks at the variations in how much money households have left at the end of the month and a key variable we look at is how young people fare compared to older age groups.

An area of concern we’ve highlighted over several issues of our quarterly report into the nation’s households’ financial situation is that the median disposable income is much lower among younger age groups than older age groups.  Those aged over 65 have the highest level of disposable income amongst all the age groups at £1,807.  This compares to a disposable income of £964 for those aged 18-24.

Our latest Disposable Income Index reveals that younger age groups remain less confident in their ability to cope with an unexpected bill (for example if the car or washing machine broke) compared to those aged 65 or over.

Younger respondents to our survey also tend to spend more than their income on housing costs and essentials such as childcare, transport and groceries.  One in six (16%) of those aged 25-34 spend more on housing costs and essential than they earn.  In comparison, only one in ten  (10%) of individuals aged 55-64 and just 3% of over 65s tend to do so.

Now the chief executive of the Financial Conduct Authority, Andrew Bailey, has warned of a pronounced build-up of debt among young people.  In an interview with the BBC, Mr Bailey highlighted the “pronounced build-up of indebtedness amongst the younger age group” but at the same time emphasised that we should not think of this as reckless borrowing because it’s “directed at essential living costs.”

There is now an increased focus on the straitened financial circumstances that face the millennial generation.  The cost of university fees, the lack of supply of affordable housing, low growth in incomes, and uncertain job prospects are among the constraints that twenty and thirty-somethings have to cope with.

On top of this, inflation has been edging ever-higher and in September rose to three per cent, its highest level since April 2012.  This is relatively good news for pensioners as the state pension will rise by this amount from next April.  On the other hand, the rise in inflation means it is now 0.9 per cent above wage growth, so squeezing income even tighter, particularly for young working people.

There is speculation that measures to help young people will be a particular focus of the Chancellor’s Budget next month.  For many millennials, a helping hand to save rather than encourage debt can’t come soon enough.

No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting Advisers may charge for providing such advice and should confirm any cost beforehand.