Diary of a Financial Life: Home | Full Report | News Release
News release
Wednesday 30 June 2004
NEW FINANCIAL ERA CAUSES BRITONS TO PUT THE BRAKES ON TRADITION
By 2024, first time buyers will be in their mid-thirties, middle-aged parents with young children will be the norm and most of us will work until we are 70 as education debt, pension under-funding and the savings shortfall totally redefines our financial lives.
According to analysis by Skipton Building Society in its ‘Financing Your Future’ report, in 10 years time, the average student will need to save around £70,000 to pay off debts and put down a deposit on a home. For those who pursue longer courses, such as medical students, the ‘debt-deposit mountain’1 could possibly reach £100,000 or more.
This in turn will have an impact on the average age of first time buyers, which is set to rise well above 35 over the next 20 years, compared to the current average age of just above 33.
The report states that the ages at which fundamental life experiences currently take place, such as giving birth and stopping work, will shift dramatically. Most notably, over the next 10 years the average age that women will have their first child will continue to rise to well above 30 years of age, alongside a gradual decline in birth rates.
As a consequence, many 21st century adults will have dependent children at an age when previous generations of parents would have been enjoying an empty nest. This will have a knock on effect on savings, with middle-aged mums and dads only freed from the financial shackles of their offspring once they reach their 50s. This in turn will trigger a frantic savings dash as they try to put by enough savings for a healthy retirement.
A triple whammy for late-starting parents will be the cost of having dependent children, plus the substantial financing of their children’s education – as top-up fees and increased living costs will force parental contributions higher than their current estimate of £500 million per annum – followed by the cost of helping them onto the housing ladder.
Pension under-funding will also have an impact. Recent figures identify that around three million people are seriously under-providing for their later years, leaving many Britons with no choice other than to work, either full or part-time, well beyond the current retirement age.
The next two decades will see a rise in people buying bigger and better houses than they can afford, exploiting long term growth in the housing market to build up substantial tax-free housing equity, then trading down on retirement to release money for pension income.
Jennifer Holloway, head of media relations at Skipton Building Society, said: “The diary of a financial life paints a very graphic picture of a changing society over the next 20 years. No longer will we leave home in our teens, marry and have children in our twenties, empty-nest in our forties and retire in our early sixties like previous generations. Instead we will witness huge shifts in traditional life cycles. The clear message coming out of the report is the need to plan now for the radically different financial world around the corner.”
Ends
Editor’s Notes
1 ‘The debt-deposit-mountain refers to future first time buyers needing to climb a financial mountain if they wish to pay off their student debts and put down a deposit for a property.
Methodology: The research was undertaken by worldtocom.com futures network on behalf of Skipton Building Society in March/April 2004.
The Skipton Building Society report maps the diary of a financial life in two decades time, highlighting its fiscal risks and dangers, in which we can see:
- Family plans delayed until our 30s
Adults will have fewer children, later in life, so parents will have dependents at an age when they would previously have been empty nesting. As a result, the savings build-up traditionally associated with our 40s will be delayed until 50+, forcing us to rush to provide for retirement.
A triple whammy for late-starting parents will be the cost of having dependent children, plus the substantial financing of their children’s education, plus the cost of helping them onto the housing ladder. As responsibility for bankrolling higher education shifts from state to individual, top-up fees and increased living costs will see parental contributions rise even higher than their current estimate of £500 million per annum. Even by 2010, students are set to graduate with debts of over £30,000.
Discouraged from home ownership by high house prices and student debt, we will enter the property market older and with substantial deposits of over £30,000 – a combination of years’ cautious saving and contributions from parents releasing equity from their own properties to lend a helping hand. The ‘debt-deposit-mountain’ will also mean that students will have to save around £70,000 to clear debts and save for a deposit.
- Pensions funded through longer, larger mortgages
To finance our later years and bolster under-funded private pensions, we will take advantage of long-term house price growth to build up substantial tax-free housing equity, buying bigger and better houses possibly than we can afford. On retirement, we will trade down to release money for pension income. Long-term risks are attached however, as the supply-demand balance is distorted.
Here, differing scenarios will be at work – on one hand, double income households could reduce perceptions of financial risk, causing levels of precautionary saving to fall. On the other, additional income may permit higher levels of saving as families pay off mortgages quicker or save for their children’s education.
- Career change in our 30s, 40s and 50s
In order to work beyond the traditional retirement age, growing labour market uncertainty and flexibility will push workers to save to fund retraining to upgrade existing skills or qualify for new careers.
Starting a family with a new partner will force many of us to begin saving again later in life, when traditionally our income would be less stretched.
Historically, older households have often provided bequests for younger relatives. In the new financial world however, particularly as the number of childless couples continues to increase, there will be less cause to fund the next generation and more reason to spend freely. In addition, working until 70 will extend our earning potential.
- Inheritance-based saving apathy
The past fifty years’ home ownership goldrush suggests that an estimated 200,000 properties could be inherited over each year of the coming decades. Expectations of future property inheritance therefore may lull today’s savers into a false sense of security.
Shifting life stages:
| Life stage |
Current age |
Future age |
| First time buyers |
33 - 36 |
Well above 35 years in 20 years time |
| Women having their first child |
27.9 |
Rising well above 30 during the next 20 years |
| Traditional savings build up |
40s |
50s |
| State pension age |
65 |
70 |
For further information journalists should contact the Skipton Press Office.