Millennial? This is why you’re broke

A middle-class life is unaffordable. Here’s the proof

More than one in five 25-to-34-year-olds say they spend more than 60 per cent of their income the day it enters their account (Getty)

Every generation since the baby boomers has seen its economic influence weaken.

That’s the stark conclusion of the latest report from the international Organisation for Economic Cooperation and Development (OECD).

Its new study into the squeezed middle classes provides conclusive evidence of what has long been clear – the idea of a large, comfortably well-off middle class is fast weakening.

Middle incomes – which the report defines as households that earn between 75 per cent and 200 per cent of the median national income – have barely grown in recent decades.

Yet the costs of maintaining a “comfortable” middle-earner life have rocketed by more than inflation.

“House prices have been growing three times faster than household median income over the last two decades,” the OECD states.

“This happened in the context of rising job insecurity in fast transforming labour markets. One in six current middle-income jobs face high risk of automation. More than one in five middle-income households spend more than they earn.

“Over-indebtedness is higher for middle-income than for both low- and high-income households. As a result, today the middle class looks increasingly like a boat in rocky waters.”

It’s another blow for the millennial generation, attempting to buy homes, raise families and clear student debt while costs rise all around them.

A certain kind of newspaper likes to imply that this over-indebtedness and lack of financial security is because millennials waste so much money on avocados and phones and date nights. In fact, as the OECD report has shown, a lot of the lifestyle extras that used to be considered standard for middle-earners have become simply unaffordable for many professionals who would previously have fallen well within the “comfortably well-off” bracket.

Of course, it’s not just the “middle classes” who are struggling – millennials of all income levels face challenges to their financial wellbeing that previous generations did not.

It has less to do with lifestyle and more to do with growing inequality and rising costs.

Here’s what we know about why we’re feeling so broke here in the UK.

Rising debt, rising costs

There’s plenty of evidence that all is not well with the finances of many people in the UK and particularly those of people under 40.

Back in January, research by the TUC showed that unsecured household debt rose dramatically last year, reaching an average of £15,385 per home in the third quarter of 2018.

And research from YouGov for KPMG has shown that 42 per cent of millennials say that debt repayments are a significant chunk of their outgoings. In fact, it found that more than one in five 25-to-34-year-olds say they spend more than 60 per cent of their income the day it enters their account.

That’s not because they are living debt-happy lifestyles, it’s because their incomes are squeezed. Average weekly earnings are still £18 lower than their peak before the 2008 financial crisis, according to data from the Office for National Statistics (ONS).

So it’s perhaps not surprising that the OECD found a third of middle-income households in the UK say they struggle to make ends meet.

Many millennials also have to contend with the additional burden of student loans and high childcare costs. The charity Coram Family and Childcare recently warned that childcare costs in England, Scotland and Wales had risen again, with a 3 per cent hike in prices in the last year.

Families are paying an average of £127 per week, or over £6,600 per year, for a part-time nursery place for a child under two, according to the research.

Millennials are a generation who’ve had large parts of their lives shaped by the events of 2008. ONS analysis published last year showed that home ownership among 22-to-29-year-olds has plunged by 10 percentage points since 2008, meaning just 27 per cent have made it onto the property ladder.

And while their financial security is an issue now, for many that will not be resolved even by the time they retire.

A survey carried out by Prudential revealed that almost one in four of millennial-aged workers are not saving into a pension and one in six don’t feel they will ever be able to afford retirement.

It wasn’t all bad news, with 69 per cent of under-35 saying they are saving into a pension of some sort, for example. But 23 per cent say they know their contribution is not high enough to afford the standard of living they want in their old age.

Last year, former pensions minister Steve Webb commented in a report published by Royal London that the average person needs to have saved more than £260,000 over their lifetime in order to enjoy a basic income in retirement.

For those who have not managed to buy a home and will need to continue paying rent, that’s £445,000 to meet the additional costs.

Low interest rates and longer lifespans mean that we need to save far more, he warned. In 2002-03, pension savings of around £150,000 would have delivered a private pension of £9,000 a year through retirement. Now the amount needed to provide that extra income has risen by £110,000.

Debt levels are rising, home ownership is falling, mortgage and rent costs are high, and the pensions time bomb is still not fully resolved, despite a rise in payments.

Many millennials will be wondering if they will ever catch a break and stop feeling so broke.