Young People Are Losers!
The future looks pretty bleak for Britain's young adults, with everyone under thirty in for tough times. Here's why.
This week, the Governor of the Bank of England, Mervyn King, and the Prime Minister, Gordon Brown, both warned that UK is heading for a recession. One definition of a recession is when the economy shrinks for two quarters in a row. The UK economy didn't grow at all between April and June, and it's sure to have shrunk in the past quarter. So, we're well on the way to meeting the generally accepted definition of a downturn.
Given the scale of the problem (largely caused by rampant borrowing and reckless lending), it seems likely that few of us will escape the coming financial hurricane entirely unscathed. However, one group for which I feel particularly sorry is the latest generation of adults, say, those under thirty. In my view, these people will suffer most as a result of the problems building up in Britain. Here's why:
1. The debt disaster
For several years, I've warned that no good would come from lending to anyone with a pulse. Alas, unlike previous generations, young people today have grown up with the idea that debt is somehow normal and acceptable. Thanks to a lending bonanza by the banks, student loans and tuition fees, and a desire to `keep up with their mates', the under-thirties have grabbed more than their fair share of credit cards, personal loans, and so on.
Indeed, the under-35s have so much personal debt that their net wealth (their assets minus their liabilities) is zero. In other words, they owe as much as they own. Alas, thanks to the banking collapse, debt is getting more expensive, plus there's less of it to go around. Thus, after the biggest borrowing binge in history, young adults are going to find themselves seriously credit crunched.
2. The savings strike
Early this year, the savings ratio (the proportion of our take-home pay which we save) was at its lowest level since 1959. With this ratio at 1.1%, we now save only one pound in every ninety. In 1992, the savings ratio hit 11.7%, or more than ten times higher. Thus, in a nutshell, saving has died a death in this country, and young people have missed out on one of life's most rewarding habits.
3. The housing horror
Nationwide BS and Halifax report that house prices are down around an eighth (12%) in the past twelve months. However, despite this slide in house prices, they are still way above their long-term average in relation to incomes. In effect, the housing boom transferred trillions of pounds of housing wealth to older homeowners, at the expense of the young.
Alas, for the foreseeable future, buying a home is out of reach for all but the most highly paid and financially secure young workers. As banks rein in their lending and mortgage ranges are slashed, home loans are being granted at lower multiples of salary. Also, lenders are insisting on a decent deposit being put down -- often a tenth (10%) or more. Thus, until house prices come down to a sensible level, most young people will be priced off the property ladder.
4. The growing government debt
In order to prevent widespread financial meltdown, the government has lent or invested in the region of £600 billion to ailing banks. Also, at public expense, it has nationalised two building-societies-turned banks, Northern Rock and Bradford & Bingley. In addition, government spending is racing out of control and could exceed tax revenues by £70 billion in the 2008/09 tax year alone.
Although the economy grew for sixteen years in a row until 2008, the government didn't put enough (if any) money aside in the good times. Now the bad times are here, our budget deficit is causing the national debt to rocket -- and today's public-sector borrowing is tomorrow's problem. Thus, the burden of servicing this mammoth debt will be borne by today's young people. They face higher taxes, declining public services and, possibly, lower standards of living than their parents.
5. The pensions pain
Today's young workers will not enjoy the guaranteed final-salary pension schemes of which their parents were members. These expensive plans have been replaced with cheaper, less attractive money-purchase schemes, where returns are lower and workers bear all the risk. Thus, today's young folk will be forced to work longer, retire later, and put up with lower pensions. In addition, the state pension age will rise to 68 by 2046, making young people wait an extra three years for their reward.
In summary, consumer capitalism has gifted prosperity to many previous generations. However, the UK's deep-rooted structural problems mean that the under-thirties face an austere and uncertain future. When later generations realised that we killed their tomorrow the better to enjoy our today, they are sure to say `enough is enough'. So, I'm aiming to get on the good side of British youth well before the revolution comes!