What does the ‘wealth gap’ mean to you?
If the wealth gap between the younger and older generations is widening and on account of age you are a beneficiary, does being richer make you necessarily feel ‘better off’?
With crazy house price rises, it may depend on having children, and they could need recourse to the Bank of Mum and Dad to buy their own home.
So where might many FiftyUp Club members, who are likely to be both homeowners and parents, sit when their houses are appreciating so steeply it’s locking their kids out of the market?
The wealth gap between the generations has always been real, and it’s just now far more pronounced. In a generation, the average full-time wage needed to buy an average home has almost gone up three-fold from five to 14 years.
Social researcher Mark McCrindle says a home is now three times as expensive for young people to buy as it was for their parents, and it affects not just where you live.
“If young people are delayed getting into property, they’re falling further behind in what drives household wealth,” he says.
The attached graphic from McCrindle’s report into the issue spells out the divide and shows how many of those at the top end are sitting pretty. His ‘older boomers’ aged 55-64 and ‘builders’ 65+ typically have twice the share of the national wealth than their numbers would suggest.
The contrast is stark between ‘younger boomers’ aged 45-54 and Generation X 35-44. Both represent 13% of the population, but the boomers have almost twice as much of the wealth!
Excellent work if you can get it, but how much is due to the patient and careful accumulation of wealth over time or the impact of windfall home price hikes?
Another take on the intergenerational divide comes from the Actuaries Institute. Those maths whizzes, who work out insurance and other risks, measure age groups’ relative wellbeing and wealth over time.
Earlier this year, their report found the gap was narrowing, with 65-74-year-olds facing declining levels of wealth and wellbeing while the 25-34-year-old group had higher scores.
Regardless of how you see it, homeowners might be conscious of a phenomenon known as the ‘wealth effect’. It says that changes to our perceived wealth, i.e. house price rise, can trigger spending changes in the same direction.
Simply put, we are likely to spend more even if our increase in wealth is more on ‘paper’ than realised in cash.
So if you are lucky enough to own your home, do you feel ‘richer’ in a real sense? Has it changed your spending, or are any positive feelings dampened by the higher housing costs your kids might face?
Any information contained in this communication is general advice, it does not take into account your individual circumstances, objectives, financial situation or needs.
