Grandparents to the Financial Rescue

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I heard it said one day that I would never be as rich as my parents. They were baby-boomers, the people that benefitted from the expansionary Thirty Glorious Years of the post-Second-World-War period. That was when jobs were for life and people earned enough to pay for the mortgage that didn’t cost hundreds of times more than you actually got in your pay-check. That was before the housing bubble came along to destroy the possibility of the younger generations getting anywhere in life. Wherever it is in the Western world, we have created capitalist societies in which the young are out of work and the oldsters have at least more money than their off-spring. But, even the people born in the 1960s and 1970s are worse off than those that were of their parents’ generations. Today the wealthier generations are the oldest according to studies that are being published.

The Institute of Fiscal Studies published a report last year that showed that those born in the 1970’s would need inherited wealth from their parents to make it anywhere in the world. For people in their thirties and forties today, meaning at the height of their professional careers, they will be in need of wealth from elsewhere just to be as well off as their own parents are in retirement. Andrew Hood a research economist at the Institute of Fiscal Studies stated: “Since the second world war, successive cohorts have enjoyed higher incomes and living standards than their parents. Yet the incomes and wealth of those born in the 1960s and 70s look no higher than the cohorts who came before them. As a result, younger cohorts are likely to have to rely on inheritances to be better off in retirement than their predecessors.”

The Urban Institute (the Washington-based think-tank) study suggested that those 30 and 40-somethings would not be able to build as much wealth as their parents. 
• Their net-worth has fallen by 21% since the start of the 1980s
• For those that are over the age of 74, net wealth has rocketed by 149%
• Why? Because wages have stagnated.
• Loan burdens have increased. 
• The younger generations were the hardest hit by the Great Recession since they had the highest loan burdens on their backs.
• There’s also the added problem of diminishing job opportunities.
• More and more people are educated and flood the market with the same degrees and diplomas, making competition greater. 
• 60% of Americans borrow to go to school these days (and there are 20 million that attend a college each year). 
• That’s alone a debt burden from education that amounts to $870 billion in outstanding debt. 
• Only 7.4% of those that are over the age of 40 still have outstanding college debts. 
• It’s 25% of those that are 30-something
• That’s the first time since the great Depression that such a scenario has been experienced by any American under the age of 40. 
• The average household income doubled between 1983 and 2010, however. 
• But, it didn’t go into the average household of those under the age of 40. 
• Average net-worth of people aged 56 to 64 saw a rise of 120% (from 1983).

Studies show that usually what happens is that as society becomes overall wealthier, then younger generations capitalize and build on the wealth of their parents’ generations. Today this is clearly not happening in the Western world. Are we finally to admit that our societies are not getting richer, but poorer?

How can the young debt-burdened workers afford to pay off their loans and to save for their retirement at the same time? Throw in the mortgage repayments and the rising transport and energy bills and you have right there the makings of a time-bomb. Not dealing with the problem today with governments concentrating their energy on failed-actions of the past like printing money, like austerity, like boosting the financial markets and the bolstering the banks will only mean that those 30 and 40-somethings will become more and more dependent in the future.

In the UK, it’s the grandparents that are giving the average amount of £300 to each grandchild during a given year to help them out these days. The parents don’t have the money. It’s the grandparents that are doing it. According to the UK report that has just been published there’s no motivation of feeling or love that is involved in donations of sums that have reached sometimes £50,000 in the UK, but, it’s all down to feeling forced to do so because the parents can’t afford to do it.

Are you better off than previous generations?

Originally posted: Grandparents to the Financial Rescue