That interesting IFS report on this generation being poorer than the one before

The IFS said more research needed to be done into why those born in the 60s and 70s “spent all, and saved none, of the additional income that they had in young adulthood relative to their predecessors”.

The reason being that this generation saved less than previous generations.

The failure is in ourselves, not The Man.

32 comments on “That interesting IFS report on this generation being poorer than the one before

  1. You don’t think rising house prices have anything to do with it?

    Also of course the welfare state does discourage some people (rationally) from saving.

  2. I suspect it’s down to the existence of the Welfare State, and the lie bought by many of us that the State will be able to protect us from cradle to grave.

    It can’t, it won’t, and the consequences will be very bad.

  3. There were a whole lot of values associated with Protestant Christianity. Prudence being one. As it declines, we become more like the feckless lesser breeds, so to speak, of the rest of the world.

    No surprises there.

  4. When you could see house prices rising 5-10% a year, or more in crazy years like 2001, saving for a deposit was not particularly rational when the annual rise was greater than your gross annual salary.

    When house prices in the SE are 5-7 times average wage saving for a house deposit is not rational. Back in the day when the boomers were buying the ratio was half that, so it was rational.

    People aren’t stupid, even the stupid ones.

  5. Negative real interest rates also discourage saving. Why put your money in the bank earning 1% a year (0.8% after basic rate tax) only to see it eaten up by inflation at 3-5%?

  6. Rob>

    “house prices in the SE are 5-7 times average wage”

    That slogan’s getting very old now. Obviously, the correct figure to use if one’s analysing rather than sloganeering is the multiple of average household income.

  7. Dave>
    “the multiple of average household income”
    Actually, try looking at % of take-home household income spent on mortgage payments. Low interest rates = high asset prices.

  8. is the reduction in savings before or after Gordon Brown’s taxation hoovering cash out of pension funds?

  9. What would have happened if they had all saved diligently? Demand shortage and unemployment? Or something good? Serious question.

  10. @ Luke
    Balance of payments in balance; no Brown bubble, so no horrendous bust and lower unemployment; also somewhat lower house prices.

  11. Luke:

    The government/BoE would have introduced policies to push them into spending instead of saving. Which, funnily enough, is exactly what they did.

  12. “Ian B
    December 17, 2013 at 1:58 pm

    Luke:

    The government/BoE would have introduced policies to push them into spending instead of saving. Which, funnily enough, is exactly what they did.

    @john77
    “December 17, 2013 at 1:55 pm

    @ Luke
    Balance of payments in balance; no Brown bubble, so no horrendous bust and lower unemployment; also somewhat lower house prices.

    Very true for both particularly IanB.

  13. It’s all China’s fault. They maintain a currency peg through capital controls, which means they accumulate piles of foreign currency. Our horrible balance of payments is a direct consequence. That cash pile gets reinvested in treasuries/gilts, mortgage-backed securities, etc. That pushes down interest rates in the west; which discourages saving.

  14. Thanks all.
    John 77
    “@Luke
    Balance of payments in balance; no Brown bubble, so no horrendous bust and lower unemployment; also somewhat lower house prices.”

    Agree with most of that – but if an entire cohort of 20 years, generally earning more than those above them, had spent 10% less, I can’t see lower unemployment. If everyone between 53 and 34 now started saving 10% more/spending 10% less, wouldn’t that be a catastrophe for employment?

  15. “What would have happened if they had all saved diligently?”

    The State would have stolen half of it via inflation, the pensions industry would have stolen half of what was left, and the State would then have changed the rules so that it turns out you haven’t actually got anything in return for the half they stole earlier, you have to pay all over again.

    No wonder people don’t save, you’d be mad to, the way things are now. It’s called a perverse incentive, I believe.

  16. “if an entire cohort of 20 years, generally earning more than those above them, had spent 10% less, I can’t see lower unemployment.”

    What if the extra savings had made their way, as loans or equity investment, into the hands of entrepreneurs? Because I can tell you for a fact, if people don’t spend the money on stuff, they have to do something else with it. Money doesn’t sit still for very long.

  17. Population inflows greater than house building (both of which are government-controlled), increasing housing costs?

  18. @ Luke
    “lower unemployment” is a result of no bubble and no bust.
    The vast bulk of the excess spending went on imported consumables (and, or including, according to your choice of definitions) foreign holidays. Hence the simultaneous rise in household debt, government and balance of payments deficit.
    Currently over-indebted households are being forced to reduce borrowings because less credit is available and while much of the cut-back is on spending of inessential imports, some of it is at the expense of UK housebuilding which is highly labour-intensive (not just the building itself but all the components and much of the contents). Hence without the Brown bubble and bust we should not only have lower house prices but also lower unemployment.

  19. Who would bother to dilligently save when the entire culture was screaming about buying property and making shitloads of money from it (backed up by very real rises in house prices)?

    It was completely rational to load yourself up with debt then. Now that prices are a joke and every political party is dedicated to keeping them there, saving for a house deposit is pointless. As someone noted above, the State will steal it somehow or other.

    I remember in 2008 reading an opinion article in The Times screaming that the ‘crisis’ demanded a 10% ‘levy’ of savings accounts to ‘stimulate demand’. This was written by Anatole Koletsky (spelling?) so not your usual Guardian loony.

    Note he didn’t advocate a windfall tax of unearned profits from selling property. When the shit approaches the fan your savings are a tempting target.

  20. Thanks all again.
    Just to prove I don’t know what I’m talking about, if I put £100 a month into a UK index fund, am I saving or investing? Asking for a friend.

  21. It rather looks like that you all got what was coming to you.
    Self indulgence , brittle marriage , low fertility, righteous legislation , country crowding, welfare ad lib, pointless education, ideology preoccupation. etc.
    Can you think of a better way to bring about the downfall of a people.

  22. @ Luke
    If you spend less than you earn and gradually accumulate the difference you are saving. When you buy the units in the Index Fund you are investing your savings.
    If you start off with £12k of cash and put £100 per month into the index fund for a year while spending all your income you are investing but not saving.

  23. Luke – “What downfall? Rich, growing population, Security Coucil member. Where did it all go wrong?”

    A growing underclass that is essentially unemployable. A growing population only because the British population is shrinking and the former Labour government was determined to import Third World immigrants who would never vote Tory. And who are taught in school to hate us. And who have blown themselves up in order to express that hatred. Becoming a shrinking minority in a sea of hate is not a good idea. We retain a legacy of past greatness but that seat is useless if the EU runs our foreign policy. It means the EU has two seats.

  24. This IFS report merely confirms what has been staring my generation (I was born in ’77) in the face for too long now. Consider the following, my generation endured a poorer education than those that went before us, our university qualifications were diluted by mass university participation, the less well educated of my peers faced greater competition for lowly jobs due to the triple whammy of increased immigration, globalisation and automation. In the meantime, we watched as house prices shot out of reach for the average Joe, saw our savings dwindle due to low interest rates and high inflation and faced higher taxes and higher utility bills. My generation will be paying the state pensions to women who were allowed to retire at 60 despite not being able to retire ourselves until we’re into our 70′s. As for any private provision of pensions, we’ve lost Final Salary schemes and been given Stakeholders in their place – these pension funds are, naturally, taxed where they haven’t been in the past. We’ve lost the ‘Jobs For Life’ culture that our Fathers and Grandfathers took for granted and have more petty rules and regulations to abide by than any generation in history.

    The government isn’t to blame for all of our woes and disadvantages but they don’t bloody help. It’s hardly suprising that the youth are turning more than ever to Libertarianism, Minarchism and Conservatism rather than the traditional follies of youth such as Marxism or other left wing pastimes.

  25. Luke: if I put £100 a month into a UK index fund, am I saving or investing? Asking for a friend

    It’s saving.

    The money you save generates investment within the economy when it is channelled by whatever intermediary to an individual or company who uses it to start or expand economic activity.

    Hope that helps your mate.

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