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How has your income fared since the crisis?
Millennials have been hardest hit by the financial crisis, with their wages being affected more than older generations, a new study has found.
The Institute for Fiscal Studies report looked at how different age groups have fared since the global financial crisis, sparked by the collapse of Lehman Brothers 10 years ago.
The report found those in their 20s are earning 5% less than those in their 20s in 2008, while those in their 30s are earning 7% less than their counterparts were earning a decade ago. This compares to those aged 60 and over, who are earning 1% less than those in the same age group 10 years ago.
In monetary terms, those in their 30s are earning on average £2,057 less than 10 years ago, with an average salary of £26,442. This compared to those aged over 60, whose average earnings have fallen from £18,766 to £18,637.
A DIFFICULT DECADE
Jonathan Cribb and Paul Johnson, authors of the research, say: ‘Alongside poor earnings growth and government policy decisions which have tended to favour the old, this has contributed to a decade during which the living standards of young people have done much less well than those of older people. For example, the after housing costs incomes of those in their 20s are still below where they were in 2008, whereas for those over 60 they are almost 10% higher.
‘We should never stop reminding ourselves just what an astonishing decade we have just lived through, and continue to live through… record low earnings growth, record low interest rates, record low productivity growth, record public borrowing followed by record cuts in public spending.
‘On the upside employment levels are remarkably high and, in spite of how it may feel, the gap between rich and poor has actually narrowed somewhat, but the gap between old and young has grown and grown.’
What’s clear from the research is that many of those in their 20s were entering the job market for the first time just after the financial crisis, when it was difficult to get a job as so many positions had been cut or companies weren’t hiring.
As a result, those individuals were paid less than their age group had been previously. This, coupled with the fact that wages across the board have stagnated over the past decade, means they are still earning less now.
During that time, millennials have also faced a Government decision to hike tuition fees dramatically, and rising housing costs as rents have increased and house prices have risen far ahead of inflation, leaving them with less disposable income.
This widening gulf between generations is partly due to Government decisions to maintain the triple-lock on pensions, which guarantees the state pension will increase by the higher of inflation, earnings or 2.5%.
One factor that can’t be underestimated is the difficulty many millennials face getting on the housing ladder. The average house deposit cost 12% of the average salary in 1997, compared to 65% of the average salary today.
What this highlights is the real difficulty people face buying their first home without help from their family – and this could create a bigger divide than the income disparity between generations. 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.
What is also alarming to note in the 10 years since the financial crash is the sheer level of debt people of all ages have taken on. Low interest rates and relatively easy access to debt mean that households are now, on average, spending more than they earn for the first time since 1988. Even in the run up to the financial crisis, with the era of 100% or more mortgages, debt in households was not higher.
This is coupled with a decline in the amount people are saving, in part due to the low interest rates on offer and in part due to wages failing to keep up with the cost of living, driving more to raid their savings for everyday living.
There are bright spots though. Last week saw wage inflation – the rate at which wages are rising – outpace the rising cost of goods. This means that wages are rising (slightly) higher than prices, and leaves people with a bit more breathing space.
The Office for National Statistics’ figures show that in the three months to July wages, excluding bonuses, grew by 2.9%, compared to current inflation which is 2.5% – marking the fourth month that wages have outpaced inflation.
Laura Suter, personal finance analyst, AJ Bell