intergenerational wealth planning

Generational financial planning

Click here to watch my video for a summary of this topic

One issue that’s never far from the financial agenda is the perceived difference between the younger and older generations in our society when it comes to their approach to money.

I’m going to generalise a little here but the way the conversation goes is usually as follows. The younger generation are characterised as carefree with their money, preferring to fritter it away on a daily flat white and avocado toast than to methodically tuck it away for a rainy day.

When faced with this criticism the younger generation reply that the older generation had bountiful final salary pension schemes and affordable mortgages and therefore had a far easier financial journey – one which the younger generation are going to have to pay for. Faced with this prospect, the reasoning goes, what’s the point of denying yourself that flat white?

There may be some elements of truth in there but, like most caricatures, they exaggerate a handful of negatives and present far from the whole picture. What’s more, piling on and picking a partisan side without digging a little deeper isn’t particularly helpful or illuminating.

Cutting through the noise

The aim for us in giving our clients valuable advice should be to try to cut through the noise and these ill-fitting exaggerations to get to a truer, more useful reading of the reality. It’s not good versus bad, or the motivated versus the feckless, just different circumstances which need to be understood and planned for accordingly. There are clearly differences in the socio-economic circumstances across these generations, but the benefits are not all weighted towards one and not the other.

It’s true that buying a house has got more difficult. The average age of a first-time home buyer in the UK is currently 34, more than a decade older than their property-buying peers in 1960 (23 years). On the other hand, average household disposable income in the UK has risen more or less steadily since the 1970s, accounting for inflation.

What’s more, a look at average retirement age is interesting. In 2018, the average age of retirement was 63.9 years for women and 65.1 years for men. These were both up from their respective lowest averages – 60.3 for women in 1986; 63 for men in 1996. However, if we look further back to 1950, when the men’s average retirement age was 67.2 and for women it was 63.9 years old, they have either actually got lower or stayed the same, respectively. Stepping back to take in the bigger picture gives us a different, more positive, perspective.

Covid and coming together

A more helpful way to start looking at the generational issue is to come at it from the perspective that the generations generally want to help each other. The older generation are keen to pass on their knowledge, guidance and assets to help nurture the younger generation. The younger generation can reciprocate with their support as the older generation ages. It’s the way human society has always been.  

It’s probably fair to say that none of us have ever experienced anything like the current circumstances we’re living through. The pandemic is totally new to every generation and has brought us together in the response to this external threat – socially, professionally and of course within the generations of our own families. It has also come with some financial insights for both ends of the generational spectrum.

Let’s look at disposable income again. Many of us are reporting that we’ve got more money left at the end of the month, or we’re saving or investing more than ever. This must mean that spending habits have changed and priorities have been reordered. Perhaps we have learnt that some elements of our daily, weekly or monthly expenditure are not quite so crucial after all. So are there lessons we can carry forward to our future financial planning?

For example, if you’re young, earning and still living at home with your parents, now would be the perfect time to build up a nest egg to take the first step on your financial journey. 2020 will be memorable for many reasons but why not also make it the year you laid the financial foundations for the rest of your life? The sooner you start, the sooner you achieve financial freedom.

Checking plans are fit for purpose

As noted above, it’s true – maybe more so now than ever – that the older generation ultimately want to help the younger generations where and how they can. A lesson for them from the virus outbreak is of the importance of checking that their financial and estate planning is still fit for purpose in the light of such a significant event.

It seems reasonable to expect that tax reforms might be on the way to help the Government pay for the extensive Coronavirus support measures of earlier in the year. This may have implications for the transition of wealth across family generations and it could be prudent and timely, for example, to reassess any financial gifting plans accordingly or revisit your estate planning with your adviser.

In summary, in the light of ongoing events, we have seen there is more that unites our generations than divides them. This should be a perspective we can all share.

If you would like some help with your intergenerational wealth planning, please get in touch.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Neil Moles

Chief Executive Officer

Neil’s main focus is developing and delivering the strategy of the business. He also looks after a number of private clients delivering a personal service to them. As an ambitious individual, he is looking to create one of the most respected advisory firms in the country.

Learn more about Neil Moles