FORGET about class war; we are entering a new era of generational wars. There is a growing sense among younger people that they won’t enjoy as prosperous a life as their parents. It is easy to understand such concerns: powerful economic, technological, demographic and political forces are forcing the generations apart.
For a start, the old system of final salary pensions is in terminal decline, so younger people will have to work longer than the cosseted baby-boom generation, for an uncertain retirement income. The property boom has delivered a one-off windfall to millions of older people, while making it harder for younger people to jump onto the housing ladder. The cost to students of university education, once entirely provided at taxpayers’ expense, is rocketing. Older pensioners often earned a good living from unskilled jobs; today, returns from such occupations have collapsed, hitting a large number of youngsters failed by the school system. Last but not least, pensioners are being largely shielded from spending cuts, further exacerbating the generational gap.
House prices increased fourfold in the 20 years to 2007. Many owner-occupiers on modest incomes, including pensioners who bought council houses at a discount, made a fortune. Wealth is thus often not synonymous with a high income: 2.6 per cent of UK adults are dollar millionaires – but only 0.6 per cent of adults earn more than £150,000 a year. Wealth has accrued largely through capital gains in the property market – younger people won’t benefit in the same way.
While it is extremely bad news for millions of younger people, two sub-groups will nevertheless do well over the very long-run even in the present environment. Those with a superior education – either through good fortune or through sheer effort – and of course those whose parents have built up housing wealth and who stand to inherit vast sums of money.
University graduates earn 50 per cent more than those with just a secondary education. The return on investment for an individual obtaining university education is around 10 per cent, higher than the return on UK equities or housing in the last 20 years, estimates Deloitte’s chief economist Ian Stewart – some consolation perhaps for recent graduates who cannot afford a deposit.
To this I would add two crucial caveats: what will increasingly count is not any old university degree but going to a good university and studying for a good, rigorous qualification. Knowledge based industries that require high levels of skill, including finance and technology, have emerged as a major source of high-paid jobs in the modern, ultra-competitive globalised world. Cognitive skills are especially valuable – but so are any useful skills, from plumbing to high-level cooking. People with good vocational training ought, in many cases, to be able to earn a lot too – we need a new generation of technical colleges.
What else should be done? Young people should save and invest as much as possible, even if they can’t afford a house. And they should try and acquire the best, most marketable skills possible – and invest in the right kind of education. The government, for its part, must tear up planning rules to make it easier to build new homes – and it must sort out the education system. This won’t resolve the crisis facing millions of younger people but it would be a good start.
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