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Millennials can’t get by on £10 000 – UK report

Millenials grapple with a host of new problems, including expensive housing to uncertain pensions.

In the late 18th century, French philosopher Jean-Jacques Rousseau wrote about the existence of a “social contract” between citizens and the government. A similarly unwritten set of rules exists between generations: Children promise they’ll take care of their parents, because they expect to be treated the same in the future.

A new report by the Intergenerational Commission, a group of experts organised by the Resolution Foundation think-tank, shows that this second contract has broken down in the UK for the first time in decades, young people don’t expect to be richer than their parents. The analysis is spot on, and would apply to plenty of other European countries. Yet many of the proposed remedies, including a £10 000 (R16 600) “citizens’ inheritance” for cash-strapped young adults, fall short – and could prove counterproductive.

The most striking difference setting apart British millennials from earlier cohorts is pay growth. While in the past, each generation had higher real earnings than their predecessors, people born in the 1980s haven’t enjoyed similar. They’re grappling too with problems that their parents never had to face, from expensive housing to uncertain pensions.

These problems are even worse in places in Europe that can’t match Britain’s healthy labour market. During the financial crisis, youth unemployment in the UK rose by less than in previous recessions. Jobs have recovered strongly since. Millennials in other countries, from Greece and Italy to France and Spain, haven’t been that lucky. According to a recent study by the International Monetary Fund, one in four youths in Southern Europe is at risk of poverty.

Unfortunately, the suggested remedies for the UK from the Intergenerational Commission are disappointing. Take, for example, that idea of giving all 25 year olds £10 000 (R 16 600). This subsidy could be spent only on a limited range of items, including paying back student debt, investing in training or buying a house.

For a start, such lump-sum payments would go to all younger people, regardless of income and wealth. That would be a poor use of state money, which is better targeted on the disadvantaged. Second, these subsidies typically end up increasing the price of the items they can be spent on. Universities would no doubt bump up fees for graduate courses, knowing there’s an extra £10 000 (R 16 600) to squeeze from students.

It’s unclear too whether all the report’s objectives make sense. Nudging young people toward saving for pensions, for example by exempting employee contributions from National Insurance, is a good idea. However, the usefulness of contributing toward housing deposits is less obvious, given the daunting cost of British homes. Politicians should work instead on increasing housing supply, something the report recommends too.

Finally, one wonders whether the report’s recommendations are ambitious enough. Asking older people to pay £2.3 billion (R38 billion) more a year for the National Health Service by raising retiree National Insurance payments is one way to tip the scales. But the distributional implications across generations would be small.

More radical ideas exist, for example setting all tax rates depending on the age of workers, as recommended by Matthew Weinzierl, an economist at Harvard Business School. In countries with strong state pensions, governments could cut excessive benefits when they are much higher than workers’ contributions.

Ultimately, though, the state can only do so much in re-settling the intergenerational contract. Much faster economic growth than we’ve had over the last decade, accompanied by an acceleration of wages, is essential to today’s young workers. To the extent that the government can help, policies need to be laser-targeted and radical. The Intergenerational Commission could have done better on both counts.


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Missing a zero in the currency conversion

Just a badly-written piece overall, really, from the headline on down.

“Millenials grapple with a host of new problems, including expensive housing to uncertain pensions.”?

If ever there was a “still born” idea this is it. Have a look at the comments under the article carried by the BBC last week to get a feel for how the British people feel about this panel of imbeciles. Growing up is tough, we all know as we’ve done it – consequently get your head down and work hard like the rest of the people born before 2000.

Its starting to get annoying, all this “oh the poor millennials” articles.
I mean seriously, no generation before them ever had uncertainty or problems?

I do agree however that the millenials appear to be doomed because unlike previous generations who were told to get off their butts, man-up (by which I also mean woman-up) and go work and make something of yourself so you dont need to rely on anyone, the message being conveyed to millenials is that their parents, grand-parents and older siblings will make a plan to take care of them.
Call them the entitlement generation, is more accurate.

Of course, the real problem is not slow economic growth, or low salaries. There are just too many people in the world. Until governments tackle that one over-riding problem, poverty, starvation and social unrest will continue.

I think this article has a point. It is not that there are too many people but too many GREY people and not enough young ones. The grey people have set themselves up with promises of comfortable pensions and health care way beyond the ability of society to provide them. I think the GREY crowd should stop being so smug.

I think the comments may have appoint in an SA context – however in the UK the promises of healthcare and a good state pensions are just that, promises. A pensioner cannot live on the state pension and the NHS has collapsed under the weight of numbers as TalkToJohn points out. Consequently the pensioners being asked to stump up the £10k are those who have invested in private pension schemes that were subject to a tax raid by New Labour in the early 2000s and what is left is taxed at a rate of at least 20%. The residual income is being spent on private healthcare, spending is subject to a 20% VAT rate and then if you are unlucky enough to have to go into care at the end of your life the State will deduct the costs from the proceeds of your estate. Against that background have a look at the sentiments of the over 50s in the UK as expressed on the BBC website and you may get a better feel for why this group of people are so angry!!!

@Lynne, that’s the case in Europe but certainly not in SA where our demographics are the exact opposite.

@Lynne. I somewhat disagree with you. The issue here is that us “Grey’s” have the capacity to turn nothing into something and the millenials are able to wait for someone to turn nothing into something. I had no help or lift in life and started my own business 30 years ago. I gave my 30 year old daughters the same opportunities and neither have been able to hack it. Both now just work for other companies.
Point is, we had no choice but to go out into the big bad world and “do something – not wait for something”. As it is no millenial will be caught dead as a cleaner, waste collector or even a mechanic. Yet we need more mechanics and artisans than ever. And that is where the problem lies.

In other words millennials are facing the same problems that generations before them are facing. Of course, previous generations didn’t waste their student loans on unemployable qualifications in the social “sciences”. Don’t expect a high paying job if your major is in Women’s Studies or Sociology.

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