By Elaine Moore
There is a growing fascination with the idea that the middle class is on its way out. Stagnant wages, rising property prices and expensive university fees mean that the lifestyle one generation took for granted is starting to look like unaffordable luxury to their children.
Take savings. There might be a few more signs of growth in the economy now, but savings isn’t one of them. The percentage of disposable income that we in the UK collectively managed not to spend in the first three months of the year is down to 4.2 per cent – the lowest it’s been since 2009.
This week, the FT reported on the emergence of consumer credit in China, where young workers who grew in an economic boom are taking on ever-higher levels of domestic debt to buy houses, cars and other accoutrements of the good life.
But if Chinese attitudes to household debt are relaxing, because its young professionals grew up a fast-growing economy, then might the reverse happen in the UK and other Western economies hit by the financial crisis?
Two US economists, Stefan Nagel and Ulrike Malmendier, believe that people born in the shadow of recession tend to be more cautious with their money.
Low stock market returns in the 1970s made younger investors more risk-averse through the 1980s, they found. Older investors who remembered the better returns in the 1950s and 1960s were more confident throughout the decade.
There are already some indications that young people in the UK are growing up more risk-averse than their older brothers and sisters.
Smoking, drinking and taking drugs are all falling out of favour according to the NHS – which found that the number of secondary school pupils in England who had tried drugs is down from 29 per cent in 2001 to 17 per cent last year.
Credit card use among the under 25s is also falling – from 22 per cent in 2007 to 13 per cent last year. Although the decline has been driven by banks tightening their lending criteria the Payments Council also reports that young people who have credit cards choose to spend less on them.
In spite of the considerable hurdles put in their way: unemployment, high rents and student loan repayments, young workers appear more keen than ever to put money aside.
In fact, young employees in the UK are more enthusiastic about joining a company pension schemes under the government’s new auto-enrolment plan than their older colleagues. Just 8 per cent of under-30s have opted out of the savings scheme so far, compared to 15 per cent of workers over 50.
Children born during the first year of the financial crisis are now starting school, where they will – for the very first time, be given lessons in financial education and learn concepts such as budgeting and repayments – which should help this trend along. But what will make the real difference is the ease with which financial institutions make their services accessible.
A 15-year-old Morgan Stanley intern caused a minor storm a few years ago when he was asked to explain his approach to technology and said that not only did he have no interest in paying for music or reading papers, but that things had to be easy to use online.
The lesson seems to be that young people will save if they are shown where and if the online interaction is simple. If companies take notice then it’s the kind of change that could benefit us all.
@The Financial Times Limited 2013. All Rights Reserved.
Not to be redistributed, copied or modified in anyway.