Email of the day on contrasting life experience between generations
Comment of the Day

July 02 2020

Commentary by Eoin Treacy

Email of the day on contrasting life experience between generations

When I read that high house prices are a problem for the younger generation, I wonder whether the historical context is considered. I bought my first house in 1974 and I finally paid off the mortgage on my current home in1999. Over the 25 years that I had a mortgage the lowest interest rate I ever paid was 10% and the highest was 15%. Yes, for a quarter century I paid 10-15% interest on my mortgage, which frequently used up more than half my monthly income. Many of my age group went through a similar experience. My wife and I hardly ever ate out, and our children were treated to many years of cheap camping holidays. I had little spare cash at any time until the mortgage was gone.

Do today's new home buyers have any idea how we lived and struggled with finances? House prices today mirror the very low mortgage interest rate and I suspect that very few (if any) 20-40 year olds are using 50% or more of their income to pay their mortgage as we did. Their money goes on things we could not afford and did not regard as essentials. It's a matter of priorities.

Eoin Treacy's view

Thank you for this perspective which I’m sure will be of interest to other subscribers. The personal experience you highlight is a testament to what can be achieved through resilience and frugality. If more people were willing to practice delayed gratification we would be in the very different world. As I see it there are two important trends that the younger generation face relative to the older generation. These are disinflation and globalisation.

The loss of mining and manufacturing jobs has hollowed out the middle classes. Historically, these were the primary route for undereducated people to achieve a middle class life style. They are admittedly more dangerous and volatile sectors but they also tend to pay well. The loss of coal mining denuded who regions of jobs and they have not recovered. The loss of manufacturing did the same and low-end service jobs that replaced them pay significantly less.

Meanwhile the downward trend of interest rates has inflated asset prices. Wages have in no way kept up but the number of distractions has multiplied. The number of monthly bills a household now has to pay have increased substantially over the years. It used to be the mortgage, food, utilities, the car and car insurance. Today we have mobile phones, Microsoft 365, streaming services and education loans to pay back.

These are very general topics but the biggest point is that the burden for this disparity has fallen most acutely on the aspiring middle class. There is a clear perception among young people that if you do everything right and follow all the rules, they will still never achieve the living standards of their parents.

Educational standards have been trending lower for years. Defined benefit pensions are a thing of the past. The gap between the opportunities afforded the educated versus the limitations faced by the less entrepreneurial is exceptionally wide. Many of those who cannot get on the property ladder are now paying 50% of more of their income on rent. These are not easy topics to contemplate but they are the root cause of the increasing political and social polarisation we see evolving everywhere.

That virtually ensures we are going to see continued monetary and political stimulus to placate restive populations. The closest parallel is with the student riots in 1968, which panicked officials into pursuing monetary financing. That seeded an inflationary problem which climaxed at the end of the 1970s.

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