By Antonia Oprita
A report due to be released on Tuesday by the UK’s Office for National Statistics (ONS) is likely to make some interesting reading (and yes, I am aware of how nerdy this sounds).
The report is about the “intergenerational transmission of poverty in the UK & EU,” an issue that is becoming more and more obvious as inequality rises following the measures taken to mitigate the effects of the financial crisis on capital markets.
No matter what the report will show, there is one emerging trend which, although at first seems perfectly normal, when analysed more profoundly looks ominous.
I am talking about the transfer of wealth from the old to the young.
There has been a deluge of articles recently — mostly confined to the specialist press for now – about how this can be achieved.
An article in Investors Chronicle earlier this month, headlined “Investing in your child’s business,” talks about how “for parents who can afford it, acting as a business angel for their children could prove to be a worthwhile and profitable investment.”
It lists the pros and cons of an investment versus a loan and gives tips on how to deal with investing in your child’s business rather than a stranger’s (this one seems particularly good: “it is sensible to work on the assumption that you will lose all of the money you invest in your child or grandchild’s business”).
While this form of investment could ultimately lead to something productive – like, the child’s or grandchild’s company taking off and becoming big enough to create jobs – another form of “investing” in the young is by far more popular.
FIRST STEP ON THE ‘HOUSING LADDER’
The Bank of Mum & Dad has nearly always been counted upon when it came to taking a first step on the horribly-named “housing ladder,” but never before to the extent that it is today.
It’s almost as if contributing to a first property for their offspring has become an obligation for the parents — and a right of the children.
Money Observer’s August edition announces on its cover: “A Foot on the Ladder: Helping the Kids.”
Inside, it gives tips on how to proceed with helping the child – number one on the list: “be absolutely clear whether your contribution is a gift, a loan with or without interest, or an investment from which you expect to take returns.”
It then lists a selection of mortgages from various providers that “harness parental help” – they mainly take a percentage charge over parents’ savings or their property, or they offer them the possibility to act as guarantor for their child.
September’s edition of Moneywise screams on the cover: “Make Your Kids Rich!”. Among the ways to do it: “help your kids buy a home.”
Not just the parents, but the grandparents are roped into this: an article in Moneywise under the headline “The bank of Gran & Grandad” says nine out of 10 grandparents have given some form of financial help to their grandchildren in the past two years.
It also quote research from life insurer MetLife showing that more than one in three over-65s have paid off debts worth more than £2,000 for children or grandchildren.
FACTOR IT INTO YOUR PLANS
Among the ways the article suggests that grandparents can help is setting “fixed, annual or monthly contributions, making it simpler to factor this sum into financial planning” for the grandparents.
While admirable for the practical advice, these articles reveal a truth that is deeply worrying: the younger generations will be worse off than their parents and grandparents for the foreseeable future. Otherwise, why would they need the handouts?
The causes of this of course are multiple, from the outsourcing of jobs from the West to lower-cost countries in Asia, which has put downward pressure on wages in the developed world, to the asset-price inflation caused by central banks’ policies of printing money, which has pushed many houses beyond the reach of young first-time buyers.
If debt is future demand brought into the present, does this mean that the appeal to the “silver pound” is just a way of unleashing unfulfilled demand from the past?
Maybe. Or maybe it’s a symptom of something more sinister: it has become widely accepted that the young will always be poorer. This transfer of wealth is just an attempt to cushion the blow.