UK millennials have failed to bounce back from the financial crisis – unlike their US counterparts
Millennials across many advanced economies were hit hard in their pay and home ownership aspirations by the global financial crisis in 2008. But 15 years on, while the living standards of US millennials have bounced back, UK millennials have struggled to close the gap with earlier generations, according to major new research published today (Monday).
The Foundation’s latest annual intergenerational audit examines how different generations across the UK have fared over the past 15 years in terms of their jobs, pay packets, housing costs, home ownership and wealth accumulation, with a particular focus on millennials on either side of the Atlantic.
The Foundation notes that the financial crisis hit millennials (born 1981-1999) particularly hard as many were at the start of their working lives. This brought an end to decades of generational progress on living standards, in which each cohort enjoyed higher disposable incomes than their predecessors. By the mid-2010s, the incomes of those born in the early 1980s in Britain were £1,400 (or 5 per cent) lower than those born 10 years earlier at the same age.
15 years on from the crisis, the research shows that millennials’ recent economic story is more nuanced, with a transatlantic divide opening up.
In the UK, millennials have been hit by long-term pay stagnation. Today, people born in the late 1980s and early 1990s are still earning no more than those born in the 1970s did at the same age – with people now in their early 30s having experienced over two decades’ worth of lost progress on pay.
As a result of this, British millennials have not experienced the living standards bounce back of their American counterparts. The disposable incomes of US millennials in their early 30s are now 21 per cent higher than their predecessors had at the same age in 2007. In contrast, UK millennials of the same age actually have lower incomes than earlier cohorts had before the financial crisis.
The authors cite two reasons for this. First, overall income growth was higher in the US. Between 2007 and 2021, median household incomes for in the US grew by 17 per cent compared to just 2 per cent in the UK. Second, recent income growth has been more favourable to young people in the US. Young people aged 21-40 have enjoyed higher than average income growth since 2007, whereas the opposite is true in the UK.
The research finds that UK millennials’ economic woes aren’t just confined to their pay packets and disposable incomes. Home ownership rates have also collapsed – though this fall long pre-dates the financial crisis and has hit generation X too.
Between 1986 and 2021, home ownership rates for households aged 30-34 had fallen by over 20 percentage points in the UK, compared to just 3 percentage points in the US. In contrast, home ownership rates among those aged 75-79 increased by almost 50 percentage points in the UK (compared to just 5 percentage points in the US).
Youth home ownership (19-29-year olds) in the UK has ticked up in recent years – from a low of just 8 per cent in 2013 to 12 per cent in 2021. And with higher interest rates likely to further reduce house prices, housing should become more affordable for the next cohort for first-time buyers.
However, the authors caution that today’s Generation Rent is still likely to become a generation of home owners (where 50 per cent own their own home) more than half a decade after their parents’ generation reached this milestone. Furthermore, even the most favourable conditions will still leave millennials’ peak home ownership rates around 10 percentage points short of those born in the 1950s and 1960s.
Sophie Hale, Principal Economist at the Resolution Foundation, said:
“Young people across advanced economies were hit by the financial crisis, putting a stop to decades of progress where each generation enjoyed higher living standards than their predecessors. 15 years on, this ‘crisis cohort’ are no longer young. And while many US millennials have bounced back, their counterparts in Britain are still wearing economic scars as they approach middle age.
“Millennials today no longer enjoy higher disposable incomes than previous generations, and are far less likely to be home owners. Instead they are forced to live in high cost, and often low security private rented accommodation that further impedes their living standards.
“The lack of progress made by millennials in the UK shows how important it is to restart meaningful growth in the UK, but also to ensure that policy decisions recognise the need for the country to work for younger generations – breaking the established trend of income and wealth growth disproportionately benefiting older generations.”