London: Only able to buy their first house aged around 35, encumbered with student debt of around £90,000 and with significantly less generous pensions than their parents' generation: this is the legacy handed down by the early 1960s 'baby boomers' to the early 1990s 'baby busters', the generation of students just starting at university, says a new PwC report out today.
On the other hand, the report notes that the baby busters are likely to live longer than their parents and to have higher absolute levels of consumption due to being born into a richer society after 30 years of technological progress and economic growth between the early 1960s and early 1990s.
The report, 'How will the wealth of the baby bust generation compare with that of the baby boomers?', reveals marked differences in the economic fortunes of people with similar career paths and life histories from different generations. It says that, relative to average earnings in society at the time, the baby buster generation could be around 25% less wealthy at age 65 than the baby boomers in terms of total accumulated housing, pension and other financial wealth.
The report looks at the lives of two hypothetical people, the first born in 1963, the second in 1993. They have very similar careers as NHS doctors and make very similar life choices in relation to marriage and children, but accumulate very different levels of lifetime housing, pension and other financial wealth.
At age 65, the baby buster's total wealth is projected to be higher, in absolute terms, at around £1.9 million, compared with the baby boomer's at around £1.6 million. However, this simply reflects projected real growth in the economy between 2028 and 2058: relative to average earnings in society at those two dates, the baby buster's comparative wealth is projected to be around 25% lower than that of the baby boomer (see table in notes to editors for details).
John Hawksworth, PwC chief economist and co-author of the report, said:
"Our report shows that, relative to living standards in society at the time, the baby buster generation may end up being up to 25% worse off than their parents' generation in terms of accumulated total wealth at age 65 — even if the volume and variety of goods and services available to the baby busters is greater than for earlier generations due to being born into a richer society with more advanced technologies.
Since academic research suggests that perceived happiness may be related more to relative than absolute consumption, there is an important sense in which the baby busters could be said to be significantly less well off than the baby boomers. This reflects the significant financial headwinds that the baby busters face from student debt, less generous pensions and probably less buoyant future housing and equity markets than we have seen on average during the past three decades.
On the other hand, the baby busters are expected to live around 5 years longer on average than their predecessors and could in some cases benefit from significant inheritances from their baby boomer parents, assuming this excess wealth does not get eaten up by long term care costs.
While the kind of hypothetical life stories we present here can never be statistically representative, the analysis does provide an illustration of how big the generational wealth gap could be in relative terms. Furthermore, the differences may be even more marked for people with less well-remunerated careers than NHS doctors."