Go to school, get a job, get married, buy a house, have children, retire. This classic timeline seems a little dated now and, well, it is. Times have changed and while this traditional pattern might still be accurate for some, it may not be the way of the future for everyone. Taking time out to travel, being more career focused – there’s a number of factors that can change the shape and direction of your life.
Different generations will have contrasting attitudes and outlooks. With a constantly changing economy, each generation encounters its own challenges. Millennials are currently facing the challenge of high education and housing costs, for example.
Getting on the ‘property ladder’ is a huge deal right now – and unsurprisingly so. Buying a house is a big ask for a young saver. In recent history, house prices have increased at a noticeably higher rate than wages and are thus a lot less affordable than they once were.
The recent launch of an online company that matches suitable people with the aim of jointly buying a house is a clear example of the struggle first-time buyers are currently experiencing. The idea of buying a house with a stranger might seem a bit odd now, but in the past it would have seemed ridiculous.
With the cost of renting increasing alongside house prices – as you’d expect from a substitute good – the aim of buying a house has almost been put on a pedestal. In the first instance it pretty much eclipses any other savings goal a young person might have.
As such, for first time buyers, there can be a problem of diversification. While it’s great to save money, it’s generally a good idea to divide it across a number of different asset classes. When all your money’s going into a property it’s hard to gain any balance. And whilst the idea of getting on the property ladder can’t be faulted too much in the current environment, if the housing market were to slow down there could be a big opportunity cost in foregone growth elsewhere.
House prices can also have a generational knock on effect. People are living at home for much longer now which means the costs associated with raising children have been pushed up. Where previously finishing university meant getting a job and moving into your own house, lots of people of moving back home instead. And potentially for a substantial amount of time. If you finish university saddled with lots of debt and no guarantee of a job, buying a house probably seems like a very long term dream while paying lots out each month in rent probably seems like a very short term reality. Which, together, make moving back home seem very logical.
But, this can mean parents are not savings as much as they might have ordinarily – potentially impacting on their retirement aims and working timescales. So, while the baby boomer generation might have benefitted on the pension and housing front, some of that benefit will be spent supplementing the millennials. And if you think the effect on the baby boomer generation is bad, it is likely to be even worse for Generation X who typically have larger mortgages and will be working for longer.
So, while the younger population need to be financially aware, those already well into their saving journey need to be mindful of the amount they’re putting away too, and confident their savings pot will be enough to meet any future goals and requirements.
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