Most millennials believe that the baby-boomer generation had it easy, and that unless something changes, their own life chances will be much less rosy than their parents’.
Not everyone is persuaded that they are right. Some believe that – given that most 20-year-olds walk around with more computing power in their pocket than NASA could afford in 1980 – in some ways, millennials have a far better deal than any previous generation.
Who is right? Is the deal worse now than it was then? And, if so, can we fix it?
The picture is not uniform, but overall there is no doubt that today’s millennials face a worse deal than their parents did; but this has not happened as a result of any laws of nature – it is the result of a succession of bad policies, and so it can be fixed.
Overall the Deal is Worse Today
The picture below gives a crude illustration of how the deal has shifted over the last 40 years.
The colour coding is as follows: red indicates a poor deal; amber indicates an acceptable deal; and green indicates a relatively good deal.
Starting at the top, someone attending university in the 1970s or 1980s received a maintenance grant – money to cover living expenses – and had no tuition fees whatsoever. The maintenance grants were phased out in the 1990s; and at around the same time, tuition fees (initially small) were introduced. A new graduate in 1980 did not need to incur any debt. By contrast, the average debt for a new graduate in 2020 was over £36,000. (The average graduate starting salary in 2020 is under £25,000).
What about the availability of jobs? Well, it all depends on what you mean by ‘job’ – technically, if you work more than an hour a fortnight even on a zero hours contract, you have a job. But you don’t really have a proper job. If we define a ‘proper job’ as one which pays at least a living wage, which provides some level of job security, and offers some certainty over the number of hours that will be worked and when they will be worked, we can see that one in six workers do not have proper jobs. In fact, even before the coronavirus struck, proper jobs have been in decline.
How about pay? A similar story – although post tax income is slightly higher now than it was in 1980. But not as high as it was in 2007.
And pensions? At the bottom end, there has been some good news – the ‘triple lock’ on state pensions did help to reduce the problem of pensioner poverty. At the middle and upper end, the news has largely been bad: in 1980 most companies’ pension schemes were defined-benefit schemes (now often referred to as gold-plated pension schemes) which paid out a proportion of final salary on retirement. But after the stock market crash following the dotcom bubble, almost all of these were closed first to new members and then to new accrual. As a population we are saving less for retirement than before, and our employers are contributing far less than before.
Then we come to housing. As we discussed before, the overall deal for millennials is vastly worse than it would have been for a young person in 1980. Whereas an average 20-year-old in 1980 might have expected to save for eight years or so to afford to buy a house, the equivalent figure now is closer to 40 years. Paradoxically, for those who have cash for a deposit, because of today’s extremely low interest rates, affordability in terms of monthly cost of a mortgage is not much worse. This means that houses increasingly go to those with capital rather than those with jobs. And because house prices are high, rent has become more expensive.
What about the good news? Well it is certainly true that technology which would have been available only to the ultra-wealthy in 1980 is now widely available. Mobile telephones are perhaps the most obvious example, along with personal computers. But even here, prices no longer seem to be falling; and these items are now considered essential. It is hard to get a job today without a mobile telephone and an email address.
And lattes and avocados — those emblems of millennial privilege? It is true that, in the UK, the availability of decent cafes, bars and restaurants has been transformed – in a positive way – since 1980. Eating out in a restaurant was, for many people in 1980, an extreme rarity: possibly something that would happen once or twice a year. And for many people this change has been an unalloyed blessing. But social expectations – partly driven by social media – mean that cocktails, dining out and partying are all presented as normal life. So if you cannot afford to do these things regularly, you can easily feel subnormal.
The picture is not all bad, but a balanced view suggests that the deal now is not nearly as attractive as the deal on offer in 1980.
This is the Result of a Succession of Bad Policies
How did we get into this mess? There is no single answer. No individual policy has caused all of these problems. Even just taking the top line in the picture, the replacement of student grants with loans did not happen in one go.
And yet there is a clear pattern of decision-making which has taken us from a reasonably good deal 1980 to very unattractive one in 2020.
Policy-making is complex. Each individual policy has many implications and should be thought out in great detail before implementation. But there are, fundamentally, only four types of policy. Each policy either grows the economic pie or it does not; and each policy either slices the pie fairly or it does not.
This gives us a picture like the one below.
And looking at this picture is very helpful in understanding how the deal has been dismantled: we have seen a succession of Type I and Type III policies; and far too few Type II and Type IV policies. That is all it takes.
We Can Fix It
And in the same way, a succession of good policy decisions can rebuild the deal. We need to see far more Type II policies; where we do have Type I policies, we should balance them with Type IV policies; and we should eradicate type III policies – the vulture policies.
In fact, five relatively straightforward steps will enable us to rebuild the deal and create an attractive feature for millennial’s and other younger generations.
If this matters to you, please do sign-up and join the 99% Organisation.