David Sturrock

Earlier this week, markets reacted to comments by the governor of the Bank of England by bringing forward their expectations of when interest rates will rise. What will this mean for different generations?

At this event, IFS researchers presented the key findings from their latest report on "Why do wealthy parents have wealthy children?", funded by the Economic and Social Research Council.

In this event, IFS researchers shared the findings from a new report, funded by the Nuffield foundation, that makes projections of the inheritances to be received by those born in the 1960, 1970s and 1980s in the UK, and examines the implications for living standards and economic inequalities both now and in future.

Inheritances have been growing as a share of national income in the UK since the 1970s. This trend looks set to continue as generations at older ages

Recent decades have seen rising wealth-to-income ratios. In England, increases in wealth have been concentrated among older generations. Those born in the 1980s have accumulated no more wealth than those born in the 1970s had done by the same age, but the parents of those born in the 1980s hold 40% more wealth than the parents of those born in the 1970s held at the same age. One consequence is that inherited wealth is on course to be a much more important determinant of lifetime resources for today’s young than it was for previous generations. New work by IFS researchers, funded by the Nuffield Foundation and released today, estimates that the average (median) inheritance of the 1960s generation will be worth 8% of average lifetime earnings for that generation, rising to 14% of lifetime earnings for the 1980s-born generation.

The fall in stock markets has reduced the wealth of those who directly hold shares and of those with defined contribution pension pots that are invested in equities.

UK households hold around £230bn of unsecured or consumer debt – including loans, credit card debt, hire purchase agreements and overdrafts. This equates to an average £8,000 per household. The bulk of that debt is held by those on relatively high incomes and in normal times its repayment tends not to cause financial difficulties. But in a minority of cases, debts can put stress on households’ budgets with consequences for living standards and mental health.

These presentations were given as part of a day of lectures on Public Economics to students, held at the IFS.

In this Facebook Live event, IFS Research Economist David Sturrock looked at the economics of pensions and the ageing population, answering questions such as how will changing demographics affect public pensions, and what can the government do about it?

Why has wealth accumulation stalled for younger generations? In the case of the 1980s generation, those in their early 30s actually have about 20 per cent less wealth on average than those born in the 1970s had at that age.

Younger generations are accumulating no more wealth in the first decades of their working lives than did those born before them. This is a source of increasing concern. Our research suggests that this lower wealth accumulation need not be due to a change in attitudes among the young - it's not just because they are blowing all their money on avocado toast. Rather it could be because of underlying economic changes - earnings growth has stalled and the returns on savings and housing have fallen. Under these circumstances it is perfectly predictable that younger generations would build up less wealth; indeed, it is reasonable for them to have done so. Given this, policies trying to induce more saving may be counterproductive. The problem is with underlying economic trends, not with the behaviour of young people.