Monday 23 September 2019

Karl Deeter: 'Intergenerational inequality gap cuts both ways'

The older generation are deluded if they think their lot is worse than it was for those of the same age 50 years ago, says Karl Deeter

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Karl Deeter

There is an idea I often write about called 'intergenerational inequality'. You can see it as a problem, or a natural phenomenon. The basic concept is that certain generations have huge advantages over others in terms of wealth, access to resources and then also in the way they rely on other generations.

Take the generation who are aged 65 and above now. They have plenty of young workers to keep them paid in state pensions and health services which they use more intensely than other age groups. On personal pensions, they usually still have defined benefit schemes, too, which are the best of all.

They got good jobs, permanent jobs, without having to spend years in college, and, by starting work early, they reached life landmarks quicker - like having kids and buying homes. They were able to buy houses at a reasonable price, most were debt-free by their 40s. Their kids are grown up, and, despite the usual callers to Joe Duffy, they have it good; they are the nation's richest people as a group.

Granted, they had tough times, too, as every generation does, but in material terms, the elderly are deluded if they think their lot is worse than it would have been at the same age 50 years ago.

Now look at those below 40, the millennials and some of the GenX'ers. They had to go to college to get a decent job, many needed a master's degree to get a job that often go from contract to contract. They can't save because rents are high, they are having children later than ever, with the average age of a first-time mother now over 31 years.

Relationship breakdown is on the rise. It has always been higher in the couples who are not married and this means that many people are trying to run two households at the same time as facing the other economic headwinds already mentioned.

If they can save, the interest received is below 1pc, often below inflation, and they get taxed on it at 37pc - which is higher than the income tax many of them pay. House prices are also rising while Central Bank rules have the desired effect of stopping people from borrowing too much.

That's cold comfort to a person, who is then stuck paying reckless rent. Reckless rent is where a person rents at a price that is above the repayment amount a prudent lender would let you pay on a loan. The only reason they do this is that people don't underwrite you for renting houses, they only do so on loans to buy houses.

Normally this would result in upheaval socially or politically, but instead, Irish families have shown a certain resilience, but not one that comes without a cost. That resilience involves parents helping their children, it was identified by Shane Ross as a voting block, which is why the Independent Alliance first brought up the idea of the 'granny grant' for grandparents who were helping to raise their grandchildren, it is estimated that one third of the people over age 50 help with childcare at least once a week.

Personally, I like to think that money isn't the driver behind this, rather it's a concept we don't hear about often in the press, even though it's a four-letter word.

That word is called 'love'.

For all the intergenerational inequality that is abundantly visible, there is a lesser acknowledged intergenerational assistance that is helping to balance things out.

Children are often living at home into their 20s, and, in some cases even their 30s, this was virtually unthinkable in previous generations.

Parents put up with this to help their kids save money, the Bank of Ireland advertisement that caused such consternation which suggested people needed to move home, hit a nerve only because it was an uncomfortable truth. Millennials responded with their standard default position: outrage.

I know from my work with Irish Mortgage Brokers than many first-time buyers are getting parental help to buy a home. The same parents minding grandchildren one day often also take care of their own very elderly parents the next.

It's the nuclear family design that helped humans survive and become the dominant species on earth; this is just the 21st Century version of it.

Whether people are happy, or if this is all fair, is a separate question. I don't doubt that grandparents relish time with their grandchildren, but do they need 30 hours a week of it? I'm sure they like having some extra time with their adult children as they stay in the family home, but until age 30?

They may be pleased to see their kids buy a home, but in doing so they probably also miss out on a new car, a nice holiday or repairs to their own home that the money could have gone towards.

For people who don't have parents to help them out, things are obviously tougher, they'll have to work harder, earn and save more to reach the same outcome, it has many people calling for all sorts of interventions, but should society step into the fold in any of these cases?

This is a key question, whether it's granny grants, childminding subsidies or otherwise, it isn't clear at least to this analyst, that any interventions will significantly change outcomes.

Money cannot achieve what love does. You can't buy a loving parent, a well-balanced child, or a happy future. Those things are instead created and nurtured on a long hard road.

What is clear is that one generation had many advantages that the next lacked, but fate is funny in the way that it always seems to find a way to claw back gains. The generation that have it all have never had such extensive familial claims on their time and money as they do now. Intergenerational inequality cuts both ways.

@karldeeter is an analyst at www.mortgagebrokers.ie

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