Millennials Hit Hardest by Effects of Financial Crisis

The wealth gap between young and old has grown significantly since the financial crisis, with millennials feeling the biggest impact a decade on

David Brenchley 14 September, 2018 | 11:57AM

Millennials, financial crisis, wages, income, real incomes

Millennials have been hit hardest by the financial crisis, feeling the impact a decade on more than any other age group, a study from the Institute for Fiscal Studies (IFS) has revealed.

The main, and unsurprising, takeaway from the report is that most people are worse off following the credit crunch. Median real earnings for employees are still 3% below where they were in 2008.

But rather than exacerbating the gap between rich and poor, the global financial crisis has created a wealth divide between young and old. In fact, the gap between rich and poor has actually narrowed somewhat, according to Jonathan Cribb and Paul Johnson, the report’s authors. “But the gap between old and young has grown and grown,” they add.

Median earnings in 2017 for those aged in their 20s are 5% lower than in 2008; for those in their 30s, median earnings are 7% lower. That compares to the older cohort – those aged 60 and over – whose earnings are just 1% lower.

A cocktail of soaring property prices, rising rental costs and lower incomes have hardly helped the younger generation in the past 10 years.

Government policies that have tended to favour the old in the intervening period have also contributed to lesser living standards for young people compared to older generations. For example, the report notes, after housing costs, the incomes of those in their 20s are still below where they were in 2008. For those over 60, the incomes are almost 10% higher.

“The widening gulf between generations is partly due to Government decisions to maintain the triple-lock on pensions, while also bringing in much higher tuition fees,” adds Laura Suter, personal finance analyst at investment platform AJ Bell.

Further, continues Suter, the average house deposit cost 12% of the average salary in 1997, compared to 65% of the average salary today. “This highlights the real difficulty people face buying their first home without help from their family.”

This, Suter says, could create a bigger divide between generations than the income disparity. “The millennial generation will be split by those with high-earning jobs, or with parents who can help with a deposit, and those who have neither.”

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About Author David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk