Why you're less likely to get rich these days if your parents aren't already wealthy
- Written by Tom Wernham, Research Economist, Institute for Fiscal Studies
Improvements in living standards over generations have been taken for granted in recent history, but these days young people are looking worse off than their parents in one major area: wealth.
Income and wealth have evolved at very different rates in the UK in recent decades, mostly due to sky-rocketing house prices. As a result, millenials and those in younger age groups are much less likely to be on the property ladder by their thirties than their parents. This has significantly restricted younger people’s prospects for future social mobility.
The last 60 years have seen large increases in income inequality in the UK, but most of this change occurred in the 1980s, and on most measures income inequality has been relatively steady over the three decades. House prices and other assets have been growing in value for decades, but this has benefited all property owners and so inequalities in the relative amounts of wealth held by rich and poor have not changed drastically as a result.
But, as recent findings from the Institute for Fiscal Studies Deaton Review of Inequality[1] show, the key change in economic inequality in the UK has been the rising importance of wealth relative to income. This has significantly shifted the balance of economic power between the generations.
This means that saving for a deposit and earning enough to qualify for a mortgage has become much harder for recent generations, for reasons unrelated to excessive consumption of avocado on toast[8]. More than 60% of those born in the 1950s and 1960s were homeowners by age 30, but only 36% of those born in the 1980s were.
Addressing the wealth gap
The combination of rising wealth and stagnating and unequal incomes means older people own increasingly larger shares of wealth, threatening the historic pattern of each generation being financially better off (on average) than the last. Younger generations must rely more on inherited wealth, rather than climbing the wealth ladder with their own earnings. This puts those whose parents and grandparents with little wealth to pass on at an increasing disadvantage. It also risks creating a crisis of worsening social mobility.
The need to tackle inequalities in income and wealth has been a key dividing line[9] in British politics in recent years, both within[10] and between the main parties[11]. But people are likely to find these income and wealth inequalities far more worrying as they become more entrenched and start to threaten social mobility[12].
The economic outlook has become increasingly uncertain. Without fundamental improvements to productivity[13] to facilitate greater earnings growth, and an increase in the supply of housing[14], it is difficult to see the recent trends of a growing wealth gap and stagnating incomes coming undone any time soon.
References
- ^ Institute for Fiscal Studies Deaton Review of Inequality (ifs.org.uk)
- ^ This article is part of Quarter Life (theconversation.com)
- ^ The last two recessions hit young people hardest – here’s how you can protect yourself for the next one (theconversation.com)
- ^ Entrepreneurs know that failure is sometimes necessary – here’s what we can learn from them (theconversation.com)
- ^ Quiet quitting: why doing less at work could be good for you – and your employer (theconversation.com)
- ^ £290,000 (landregistry.data.gov.uk)
- ^ very low interest rates (www.bankofengland.co.uk)
- ^ excessive consumption of avocado on toast (www.theguardian.com)
- ^ a key dividing line (ifs.org.uk)
- ^ within (progressiveeconomyforum.com)
- ^ main parties (www.ft.com)
- ^ social mobility (www.britannica.com)
- ^ productivity (ifs.org.uk)
- ^ supply of housing (commonslibrary.parliament.uk)
