Home Education Inter-generational Financial Giving and Inequality: Give and Take in 21st Century Families
The Baby Boomers: A Lucky Generation?
The previous section of this chapter showed some evidence to suggest that the baby boom generation (as far as there is one) is a large cohort which is, on average, wealthier than other generations. However, such wealth is partly a result of lifecycle factors. Furthermore, there is much inequality within this cohort, with some baby boomers having very little wealth, if any. Nevertheless, given their average level of wealth relative to other generations, there is an assumption that the baby boomers have been a ‘lucky’ generation in that they have lived at a time of growing prosperity when the welfare state was relatively generous. They may have also disproportionately benefited from the expansion of free higher education and advantageous labour and housing market conditions. According to this view, younger generations will benefit far less and, indeed, may be the first generation to be worse off, in aggregate, than their parents. So what is the evidence here? Are the baby boomers a ‘lucky generation’?
In order to assess the evidence on the benefits received by the baby boomers in terms of the welfare state, we need, first of all, to consider the different ways in which the welfare state facilitates public transfers from one group to another. This often, though not necessarily, involves transfers from one generation to another (Hills 1996; McKay and Rowlingson 1998). Here, we review these different mechanisms to see if one or more groups are net gainers or losers from this redistribution. We then review, more generally, the amount of public expenditure which goes to particular generations and how this varies across countries and over time. Finally, in this section, we look more broadly at how different generations have fared over time, not just in relation to the welfare state but also education, health, the labour market and housing.
One way in which the welfare state redistributes income is over the course of an individual’s own lifetime so that they contribute most when of working age and then receive most when they retire and/or if they have times out of the labour market before retirement. This is the version of the welfare state that many people in Britain think of in relation to pensions. The British state pension scheme is, indeed, a ‘contributory’ scheme through national insurance contributions and so people consider themselves as putting money into the scheme which they then access when they retire.
However, while it is true that entitlement to the British state pension system is linked to contributions, the money that people contribute is not actually invested for their future. In practice, money paid in contributions and general taxes in any one year is then used to pay those receiving pensions in that year. Thus, pensioners’ benefits, at any one time, are being paid by workers and tax-payers. There is, therefore, a combination of processes at work—one in which there is redistribution across someone’s own life course (through their contributory record leading to entitlement to a pension) and redistribution from current workers/ tax-payers to current pensioners at any one time.
There is also a third type of redistribution occurring—from rich to poor—as there is no absolute link between how much people pay in taxes/national insurance contributions and how much they subsequently receive. Some people will pay far more in than they receive and others will pay less.
So how much do different individuals and generations contribute and how much do they benefit? Various attempts have been made to estimate how much an individual has paid in contributions and how much they have received from different benefits during their lifetime to assess which individuals might be seen as net gainers and net losers (Johnson and Falkingham 1988; Johnson et al. 1989). In the 1980s, as mentioned in Chap. 1, pensioners were seen as the main net winners—see Thomson (1989)—and this fuelled calls for cuts in pensions. In the early twenty- first century, attention has shifted to the baby boomers (perhaps not coincidentally at the point when many are, themselves, becoming pensioners) as the debate has widened from the welfare state to other areas in which this generation may have benefitted, including house price rises, easier access to mortgages and mortgage interest relief, free higher education and a relatively buoyant labour market from the 1950s onwards (see below).
There are, however, numerous difficulties in working out which generations are ‘net gainers’ and ‘net losers’ (see Hills 1996). For example, such calculations can only be made definitively once different generations have died. Otherwise, they are based on predictions linked to current or possible policy changes. Such predictions are particularly difficult to make for the youngest generations of course and depend crucially on a range of factors not least economic and income growth. Furthermore, it is not clear how to deal with inflation in these calculations. Someone who contributed ?1 in 1945 and received ?1 back in 2010 has clearly not broken even so presumably we should apply some kind of inflation adjustment? But is this enough given changes in purchasing power? How do we really calculate whether or not someone has received more, or less, than they contributed?
There is also an issue about whether to analyse the overall, aggregate position of each generation or the ‘typical’ member of the generation. All other things being equal, the aggregate figure will make large generations appear particularly well off compared to small generations, whereas an average figure will not be affected by the size of the generation. The average (if the mean is used) will, however, be subject to distortion if there is great variation in the generation. Another problem is that if one generation lives considerably longer than another, then their aggregate position may look better than a generation which does not live as long, but at any point in time the longer-living generation may be worse off. Average figures will also help remove this particular bias.
Finally, there is the problem of which variables to use to measure contributions and benefits. Hills (1996) includes education, health and social security on the benefit side of the equation with taxes on the contribution side. This makes perfect sense in relation to the arguments about the welfare state but some generations might benefit from policy changes which enable them to accumulate housing wealth for example. Policies like Right to Buy and the treatment of housing wealth in the tax system could also therefore be included. Policies around payment for higher education (from grants covering all costs, including living costs to loans and increasingly high tuition fees) are also important here. And, then there are changes in the broader economy in terms of house prices and wages which may benefit some cohorts more than others. If we are interested in which cohorts are more generally better off, financially, than others, then we need a much broader analysis.
But if the baby boomers or other older generations have received more from the welfare state than they paid in, does this necessarily mean that younger generations will be net losers? Thomson (1989) argues that this would be inevitable and uses the analogy of an unsustainable chain letter to argue that it is impossible for each successive generation to be net gainers from the welfare state. However, Hills argues that a better analogy is a single line of people sitting next to one another, each with a box of chocolates. The line starts with the oldest person on the left but then continues indefinitely to the right as future generations will be born to fill the chairs. Each person in the line then passes their box of chocolates to the left. The oldest person on the left has no-one to pass the chocolates to and so ends up with two boxes and so is a net gainer. Everyone else is in the same position as before - with one box of chocolates each, provided that the line carries on indefinitely and no-one changes the rules. It is therefore important to carry out empirical analysis to test the extent to which some generations might be net gainers and net losers and this is what Hills (1996) has precisely done.
Hills (1996) divided the population into 18, 5-year, cohorts (e.g., people born 1901-1906, 1906-1911, 1911-1916 etc.) and found that the first two cohorts did appear to be net winners with their cumulative net receipts from the welfare state already having exceeded their net payments into it (by 1991), based on aggregate analysis. The third cohort (born between 1911 and 1916) looked likely to break even by the time its members turned 80. However, Hills cautioned about drawing conclusions about any of the other cohorts as they had yet to reach the later parts of the life course. Having said that, Hills did then carry out some analysis to project possible future contributions and receipts and found that the cohorts born between 1901 and 1921 were the biggest net gainers. Even these groups, however, would contribute between 80 and 90 per cent of the benefits they will have received. The cohort who appeared to be the largest net lowers were those born between 1921 and 1936. Hills (1996) suggested that this is explained by the fact that this was a small cohort of people and so the costs of paying for the (new) welfare state could only be spread among a relatively small group compared with larger cohorts. However, the difference between the different generations is relatively small and so any talk of ‘welfare generation’ or conflict between gainers and losers seems unjustified.
Hills (2014) shows that, over their lifetime, most people receive, from the welfare state, a similar amount to their contribution. This is the case not only for people of different ages but also for people with different levels of income. Those on higher incomes will certainly contribute more, in the form of taxes and national insurance, but they also tend to live longer and so benefit more from pensions and healthcare than other groups.
Of course, if the welfare state changes direction in future decades, the outcomes for different generations will vary from these projections. Further cuts in working-age benefits, as have been introduced since 2010, will further reduce the benefits that younger generations gain from the welfare state. Reversing these changes will increase their benefits.
As mentioned above, as well as looking at whether particular individuals in particular generations are net gainers or net losers, another way of looking at this issue is in relation to how much public spending goes on different generations at any particular point in time (sometimes referred to as horizontal equity). Bradshaw and Holmes (2010) used OECD data from 1980 to 2007 to show that, contrary to general perceptions, there was no evidence that social expenditure had been shifting in favour of older people at the expense of children, except perhaps more recently in Nordic countries. Their analysis showed how support for those who had retired had changed over time relative to non-pensioners. It also showed which elements had contributed to the changes and for which part of the income distribution. Bradshaw and Holmes (2010) found that there had been a small shift in final income in favour of people who had retired, but it was not the result of changes in taxes, benefits or services in kind but rather a change in the (original) income distribution in favour of the elderly. Indeed, the data suggested that after 1995 there was an increase in expenditure per child relative to expenditure per retired person in the UK. Furthermore, the analysis of UK data at a micro level took into account the impact of direct and indirect taxes and health and education spending not included in the OECD analysis. The conclusion from this was that the impact of taxes and benefits on the elderly vis-a-vis households with children had been extraordinarily stable over the last 20 years.
Figure 2.5 also shows that the projected increase in UK public expenditure on ageing is relatively modest and largely reflects the growing proportion of older people in the population.
Since Bradshaw and Holmes carried out their study, the Global Financial Crisis and the austerity programme pursued by the Coalition government (2010-2015) has had a major impact on welfare spending with cuts to working-age benefits while pensioners’ benefits have been
Fig. 2.5 UK public expenditure on ageing as a percentage of GDP (Age- related spending on health, social care, state pensions and benefits, see Office for Budget Responsibility (2013) Fiscal Sustainability Report, http:// budgetresponsibility.org.uk/wordpress/docs/2013-FSR_OBR_web.pdf) largely protected (McKay and Rowlingson 2016). Having said that, there have been considerable cuts to social services budgets which have particularly impacted on older people. Indeed, there is concern that the largest increase in the mortality rate for 50 years is due to cuts in social services support. Figures, from the Office for National Statistics, have suggested that mortality rates increased in 2015 by 5.4 per cent compared with 2014—equivalent to almost 27,000 extra deaths. The increase is the highest since 1968. Such cuts in social services are unlikely to be affecting the baby boomers at the moment, but as this group age, and as the cuts look set to continue, this group will certainly face more difficult times in the future.
Of course, as mentioned earlier, the welfare state is not the only mechanism by which particular generations may achieve higher levels of welfare than others. The ‘lucky’ baby boomer generation appear to have benefit- ted from a range of favourable social, economic and policy conditions during their working lives. Willetts (2010) for example pointed to the bulge of workers who could command high wage premiums in the 1970s, with relative job security. This generation also benefitted from low house prices relative to incomes in the 1970s and 1980s as well as the Right to Buy policies from 1980 onwards and rapid house price inflation. Baby boomers also benefited from free higher education, with maintenance grants to cover living costs. And their pensions were relatively generous, with many defined-benefit (final salary) pensions guaranteeing security compared with the defined-contribution pensions which have transferred risk to the individual saver, leaving people uncertain about what their future pension income might be.
The Intergenerational Foundation (Kingman and Seager 2014) have also drawn attention to the increasing pay gap between older and younger workers’ wages which they estimate has increased by more than 50 per cent between 1997 and 2013. They have pointed out that median gross weekly wages have fallen by over 19 per cent in real terms since 1997 for workers aged 18-21, whereas workers over 50 have seen increases of 25 per cent.
However, it is easy to romanticise the ‘golden age’ that baby boomers appeared to go through. Other statistics present a different picture and have suggested that the baby boomers did less well, for example, in terms of earnings.11 According to the Office for National Statistics, those entering the labour market in 1995 (Generation X) did better in terms of wages than those entering the labour market in 1975 (the baby boomers). This difference was not caused by inflation, because the Office for National Statistics analysis controlled for inflation. It seems due, instead, to the structure and long-term performance of the economy, with a loss of jobs in manufacturing and an increase in jobs in services, including financial services between 1975 and 1995. Workers in banks or IT in the 1990s could earn higher wages more quickly than someone learning their trade in industry in the 1970s. More importantly, perhaps, we should remember that the mid 1970s was the first recession since the Second World War, accompanied by extremely high inflation. The response to this so-called stagflation was a three-year squeeze on real wages designed to bring inflation back down.
The economy then went through two more recessions in the early 1980s and early 1990s before the 1995 cohort entered the labour market. The mid 1990s saw the start of steady growth in the economy without high inflation, a decade that Sir Mervyn King dubbed ‘the nice decade’. The peaks and troughs of the economic cycle were smoothed out, and it appeared that the era of ‘boom and bust’ was over as Britain experienced uninterrupted, steady economic growth between 1992 and 2007. This was therefore a good time for young people to join the labour market. The period since 2008 has, clearly, been a much more difficult time with the deepest recession in a century, with median hourly earnings of the 1995 generation falling by 10 per cent from 2009 to 2013. However, the downturn has had an even bigger impact on older workers, with the hourly earnings of the 1975 cohort dropping by 12 per cent in the same period.
Hood and Joyce (2013) found that people born in the 1960s and 1970s had no higher take-home pay compared with those born a decade earlier, 
oomerhad saved no more, were less likely to own a home and were only likely to be better off in retirement if they had inherited wealth. This led to a general conclusion that this younger generation could be the first generation in modern times to be worse off, on average, than their parents.
Changes in the housing market have particularly affected younger generations. In the UK, rates of home ownership increased dramatically between 1951 and 2001, particularly benefitting the baby boomers, some of whom would have been able to take advantage of Right to Buy policies and favourable mortgage deals, facilitated by government deregulation of the mortgage market. Since 2001, however, owner occupation has started to decline and younger generations have faced increasing difficulties in gaining a foot on the housing ladder due to a combination of factors, including the increases in house price relative to income (Williams 2007; Home Owners Alliance 2012; McKee 2012; Whitehead and Williams 2011). The financial crisis of 2008 further contributed to the decline of home ownership with a general squeeze on new mortgage lending, for example with lenders requiring larger deposits.
Much of the concern about the decline of home ownership in the UK has been framed in terms of the problems faced by younger generations, sometimes nicknamed ‘Generation Rent’ (Blackwell and Park 2011). While it is certainly true that younger people are facing particular issues here, it is also important to bear in mind that a range of factors are at play here, including problems with housing supply/distribution and the changing demographic composition of the UK in terms of ageing and migration patterns. The ‘edges of home ownership’ are therefore populated by a diverse group in the UK with age being only one factor. That said, there is, without doubt, a particular issue of younger people being ‘priced out’ of the housing market. For example, a study by Clapham et al. (2012) for the Joseph Rowntree Foundation concluded that more than 1 million young people will be “locked out” of home ownership by 2020, making up a generation that is “increasingly marginalised” in relation to housing. It suggested that the number of home owners under the age of 30 will fall from 2.4 million in 2008 to 1.3 million in 2020. A study by the Halifax Building Society (Generation Rent2015) also found that the proportion of people aged between 20 and 45 putting money aside for a deposit had not changed for three years but then fell to 43 per cent in 2014.
Research by the Council for Mortgage Lenders (2011) has also pointed to the decline in the number of first-time buyers from a long-term average of around 500,000 per year prior to the financial crisis of 2008 to 200,000 in the years following. The affordability challenge is not so much in terms of monthly mortgage payments as interest rates are low. The main barrier, it appears, is the size of the deposit. In 2007, first-time buyers paid deposits of about 10 per cent of the purchase price (about ?13,000 on average). By 2009, this rose to 25 per cent, falling back to 20 per cent in 2011 (about ?26,000 on average) despite declines in average first-time buyer incomes. This has led to a decline in the proportion of first-time buyers who have bought properties without assistance (largely from parents). In 2005, over half of borrowers aged under 25, and nearly three quarters of those aged 25-29, bought properties without assistance. By 2011, these figures had fallen to 8 per cent and 27 per cent, respectively. The average age of buying without assistance correspondingly rose from 30 in 2008 to 33 just one year later.
Research by Humphrey and Scott (2013) further suggested that three in ten adults who purchased a home between 2005 and 2013 received financial assistance from others. One in five buyers received a gift (19 per cent) and 13 per cent received the assistance as a loan. Such support from relatives with house-buying is certainly not confined to the UK, with evidence of similar patterns in behaviour in various countries not least Australia (Barrett et al. 2015). Most recent data from the Council of Mortgage Lenders suggest that the percentage of first-time buyers receiving help from family members increased from around 30 per cent in 2005 to around 70 per cent in 2009 before falling to about 50 per cent in 2014 (Clarke 2015). And Legal & General (2016) have estimated that the ‘bank of mum and dad’ will transfer around ?5 billion for house purchases in 2016, putting it in the top 10 mortgage lenders in the UK and involving it in about a quarter of all mortgage transactions.
It is therefore clear that it has become increasingly difficult for ‘Generation Rent’ to become home owners unless they can turn to the ‘Bank of Mum and Dad’ (or, indeed, the ‘Bank of Grandparents’) for financial support. It is also clear that people need support from families in other ways. For example, some of those who are already owner occupi?ers are struggling to meet their existing mortgage commitments on their own. Mortgage arrears are increasing and the number of mortgage (re-) possessions increased markedly from less than 10,000 in 2003 to a peak just under 50,000 in 2009 (Rowlingson and McKay 2014). Numbers have subsequently fallen to 34,000 in 2012, but this is still far higher than the pre-crisis levels, and if interest rates start to rise, as predicted, in the next few years, more existing owner occupiers may struggle to remain home owners. Of course, if they receive financial help from families, people may be able to reduce their debts and avoid re-possession.
But some people are not (just) on ‘the edges of home ownership’ they are also on ‘the edges of housing’ and so vulnerable to homelessness. Clapham et al. (2012) predicted that, by 2020, 400,000 young people could be “excluded completely” from housing, unable to afford to either rent or buy accommodation. In these circumstances, families may be called on to help in terms of either direct financial support or indirect inkind support, such as providing accommodation for free or for amounts lower than would be charged in the private sector.
Alongside the labour and housing markets as potential sites of advan- tage/disadvantage, the substantial increases in university fees and maintenance costs are also often mentioned in the debate about the ‘lucky’ baby boomers. Once again, however, it is important to stress the inequalities within generations here, as only a small minority of baby boomers benefit- ted from free higher education, including maintenance grants. According to Chowdry et al. (2010), only 5 per cent of 17-30-year-olds went to university in 1960. This percentage almost tripled by 1970 to nearly 15 per cent but then fluctuated between 10 and 15 per cent until 1989. The 1990s saw another major increase in participation—this time to over 30 per cent of young people by the late 1990s and then to 43 per cent by the late 2000s. Later generations may have therefore had to pay successively more to go to university and take out loans rather than receive grants. But their chances of going to university also increased substantially, ben- efitting from higher earnings later. Having said all this, Rowlingson and McKay (2014) have shown that, data from 2010 to 2011 (i.e., before the cohort of students affected by the lifting of the cap on tuition fees to ?9000), average (mean) debt was ?9174. This is likely to increase very substantially in the next few years.
Another significant variation within each generation is in terms of gender. Women’s experiences, relative to men, will vary within different generations. For example, over the second half of the twentieth century, the percentage of working-age women in the labour market increased significantly from 46 per cent in 1955 to 67 per cent in 1995, and the hourly gender pay gap decreased such that in 1999 women’s hourly pay was 80.9 per cent of men’s compared to only 63.7 per cent in 1970 (Walsh 2001). Women’s participation in higher education has also increased in absolute terms and compared with men. By 2013-2014, at first degree level, 55.1 per cent of students were women while at postgraduate research level, 47 per cent of students were women (Universities UK 2015). Family change has also impacted on women as rates of separation/divorce and lone parenthood increased (see the next chapter).
Brannen et al.’s (2004) qualitative study of employment and care in families with four surviving generations documented these issues in detail, pointing to elements of continuity and change in the lives of these different generations. For example, while the British welfare state has taken on a much greater role in some areas of family life (such as health and education) over the course of the twentieth century, there had been much less public support for women who join the labour market, thus increasing the need for family support in this area of life. And while women’s increasing engagement with the labour market does signal an important shift in socio-economic and family life, women of all generations had taken on part-time work at different times in their lives, so, again, there were continuities here as well as change. The growing inequality of life chances, and the growing dependence on family support in most recent years, is particularly important and we now turn to data on inter-generational transfers in practice.
So, were the baby boomers a lucky generation? Some could certainly be considered such if they benefitted from free higher education, an expanded welfare state and advantageous labour market and housing conditions. But many were not able to do so and face retirement with little security at a time of welfare state cuts and uncertain economic conditions. Their future life chances and experiences—along with those of younger (and older) generations—will depend crucially on the policy choices made from now on.
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