In 2015, a year that brought us the launch of Donald Trump’s successful presidential campaign, the birth of Princess Charlotte, and Adele’s highly anticipated return to music, little did we know that it would also signal the beginning of a five-year financial golden age.
Exclusive research conducted for The Mail on Sunday by wealth manager Interactive Investor reveals that 2015 marked the first time in history that less than half of the average worker’s salary was spent on essential housing, energy, and food bills. This left plenty of room for saving and indulging in luxuries and holidays.
During these five years, food costs accounted for only 12% of the average salary of £27,560, while energy bills took up a mere 4.6%, and mortgage payments comprised 28%. In total, these essential expenses made up less than 45%.
However, the financial landscape has since shifted. Currently, approximately 66% of a worker’s salary is dedicated to these essential costs. With high interest rates projected to continue and mortgage expenses rising as many homeowners transition from cheap fixed-rate loans, this percentage is more likely to climb even higher.
Though today’s young generation may feel the strain of these financial pressures, it’s important to consider the historical context. Interactive’s Alice Guy, who compiled the analysis, notes that those who began their adult lives in the 1970s and 1980s can recall a time when finances were incredibly tight, leaving little money at the end of the month for treats like dining out or vacations.
Data sourced from the Office for National Statistics and the Building Societies Association reveals that in 1990, over 92% of the average salary went towards housing, energy, and food bills. This was a time when interest rates reached double digits and inflation rates far surpassed today’s 8.7%.
Angus Hanton, co-founder of the Intergenerational Foundation, points out the distinct challenges faced by today’s younger generation, particularly regarding housing affordability. He emphasizes that house prices were significantly lower in past decades. For instance, he purchased a house in 1983 for £17,500, which would equate to £51,000 adjusted for inflation – a stark contrast to the current value of over £1 million due to consistent house price growth.
Hanton adds that high interest rates are causing additional strain, as young individuals have been encouraged to accumulate debt. This exacerbates the financial burden they face.
One noteworthy change over the years is the cost of food, which has become considerably more affordable. Workers in 1970 spent nearly 40% of their income on food, compared to just 11.5% today. Discount supermarkets like Lidl and Aldi, along with advancements in farming methods, have contributed to this decrease.
However, it’s important to note that food prices have surged by 18.4% in the past year, presenting a new challenge for households. Hanton warns that regular dining out has become increasingly unaffordable for many young people.
The past year has also witnessed an energy crisis, with costs surpassing inflation. Energy bills doubled last winter, reaching an annual average of £2,500 per household. Currently, over 7.4% of people’s income is allocated towards energy bills – the highest percentage since 1985.
Today, retirees live more comfortably compared to previous generations, thanks to the state pension triple lock, universal benefits, defined-benefit work pensions, and accumulated home equity. In fact, when considering housing and pension wealth, one in four individuals over the age of 65 reside in “millionaire households.”
Conversely, an increasing number of twenty-somethings find themselves moving back in with their parents due to the inability to afford independent living. Millennials, born between 1985 and 1995, face mounting financial pressures on various fronts. Essential everyday expenses, such as student loans and childcare fees, have forced many young individuals to struggle with limited budgets.
While every generation believes that they face the toughest financial hurdles, it’s crucial to recognize the unprecedented hardships experienced by today’s youth. The financial difficulties they encounter should not be overlooked.
Oh, if only we could turn back the clock to the relative financial ease of 2015.
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