A lot has been said recently about the different generations in the UK being polarised, whether this relates to their levels of wealth, their lifestyle or their views about Brexit and other political issues.
The Financial Conduct Authority (FCA) held a Conference on Intergenerational Differences in early July 2019. Opening the conference, chief executive Andrew Bailey described “the forces shaping the inter-generational issues” as the FCA’s most important long-term issue. He also called on the financial services industry to change and adapt to the changing needs of different generations.
Mr Bailey first mentioned some of the challenges faced by the younger generation: they have higher debt, even when student loans are discounted; and they are struggling to get on the property ladder, and even when they can do this, they may have to take the mortgage over a very long term and will thus still be repaying their mortgages in later life. They now also pay, on average, around five times their annual salary to purchase a property, when 25 years ago they only needed to spend 2.4 times their salary.
Turning to the pensions arena, the FCA chief remarked that, over time, the responsibility for saving for retirement had largely been transferred from employers and the state to individuals. He also noted that nominal and real interest rates had been low in recent years, and that this had increased the cost of saving for retirement.
Summarising, he said that the traditional life model was fast disappearing. This model involved purchasing a property as a young adult, paying off this mortgage well before retirement and then retiring at a fixed age and receiving a fixed income level for the remainder of their life. Mr Bailey remarked that, for the first time since the Second World War, the younger generation is now less well off than the previous generation.
Turning to consumer credit, the FCA chief commented that growth in the market was largely driven by increases in the volume of car finance debt and 0% finance debt amongst people with higher credit score. Speaking of the need to adapt to changing circumstances, Mr Bailey said on this subject:
“Prolonged low-cost borrowing, unstable income and limited savings creates new consumption patterns and financial services need to adapt to changing consumer profiles.”
Mr Bailey concluded by explaining the FCA’s role in addressing inter-generational differences, and also said any suggestions from his audience on how to address these issues would be welcome. His closing remarks were:
“As a regulator, we are here to serve the public interest. We aim to ensure financial markets work well for UK consumers. This includes enabling them to adapt to changing societal needs.
“Finally, I would like to encourage you to share your ideas with us and each other during the course of today, to keep this debate moving and find ways to turn debate into action.
“For our part we’ll be taking stock of what we hear today and the responses that we get to the Discussion Paper. That will help us determine the work we take forward to and make sure we’re taking the right approach on issues that play such a significant part in shaping people’s lives.”
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