Our generation has had a hard time. Even if you’ve dodged the economic and job damage caused by bans, QE is going nowhere, increasing the prices of valuable assets beyond the reach of many millennials. But there is some good news: we can use incredible breakthroughs in the financial industry and the free money they saved during the lockdown to increase their future wealth. Iona argues why this could be a golden opportunity to finally improve your financial position – as long as you keep your cool …
When the Chancellor made his budget speech this month, there was no mention of quantitative easing – the two magic words that have been at the center of economic policy since the financial crash.
But QE is the gift that is given time and again to shareholders for many reasons. Stock markets go yay when central banks add money to the economy, while companies can invest and become more valuable when they can borrow cheaply.
When people can’t make high interest rates on bonds or deposit savings, they look for better options elsewhere – like stocks. Most economists today believe that QE will become a cornerstone of modern economic policy. Who benefited from it? Shareholders and homeowners, who are usually the elderly. Millennials largely missed this whole wealth-building orgy.
This is why we hear so much about inequality between generations. And this itself inflames intergenerational inequality – the twin-track economy among younger people. Those who have access to the Bank of Mum and Dad are far better than those who cannot. And that gap will probably only widen after Covid.
Ok Boomer: Let’s loosen up the oldies a little
It is a sad irony that the young people who need the most financial support and assistance get it the least. We used to talk about the belongings: Now it’s about the belongings. Now you can see why QE has been accused of fueling huge inequality between AND within generations by raising the prices of assets that richer, older investors already own.
But we also have to loosen up the baby boomers a little. Yes, parenting handouts exacerbate financial disparities among millennials. But what else should families do? Should they hold back in the vain hope that governments will be strengthened? If our parents hadn’t gotten involved and become one of the UK’s largest mortgage lenders, where would many of us be now?
Plus, the boomers have suffered their own problems, from mis-selling scandals to a number of unexpected fees and taxes on their pensions. And they survived the wild west of banking and financial advisory in the 1980s to 1990s. Bad guys in finance are nothing new! Plus, we weren’t the only ones messed up by low interest rates and QE. Many baby boomers bothered to pay off mortgages when interest rates consistently doubled in the 1970s and 1980s. Was it too much for them to hope that they could take advantage of the interest on their retirement savings? Apparently yes.
And really – what’s the point of feeling bitter and hopeless? My motto in the Young Money Blog is: “Don’t be angry, find out more.”
There is also good news. We have a lot more power than we think.
Here’s the good news: we matter!
There are a number of reasons why we are important. Millennials are among the largest generation cohort since the Boomers, and we make up more than a third of the modern workforce. That makes us a collective force to be reckoned with. When it comes to interacting with brands – financial or otherwise – we are at the forefront. Where our parents have had to remain loyal to a limited range of companies, we can be moody. Technology is advancing at the fastest speed in history, constantly improving the access to and quality of services. A universe of information is now at our fingertips.
We can be value conscious. This does not mean, above all, pursuing the lowest cost. I’m talking about carefully weighing the costs so that we don’t have to pay more than is necessary. I’m not going to pretend we’re in a utopia where all costs are easy to compare. But things are getting better and young people can benefit from it.
Some of us actually have cold hard cash along the way. Millennials face a future £ 5.5 trillion profit from baby boomers, and five million people between the ages of 25 and 45 believe their inheritance could be worth an estimate of £ 50,000 or more. In July 2020, the Institute of Fiscal Studies announced that a quarter of people born in the 1980s would inherit £ 300,000 or more. The only problem? We usually don’t get this big flat rate until the sixties. We need to take steps beforehand to make sure we know how to get the most of our money instead of relying on big bucks to land on our laps.
Don’t rely on big bucks: plan now
Besides, how do we know that a nasty surprise is not in wait? Perhaps your legacy is not as great as expected. Maybe you won’t get one at all. Most importantly, financial institutions act like we can all make money – and that forces them to improve the products and services they offer us. We can benefit from it whether or not we have a Bill Gates in our family.
For anyone fortunate enough to keep their finances through the pandemic on a balanced keel, big decisions may lie ahead. These diems will be tempting to buy when the economy opens again, and anyway I’ll join everyone in the pub. But now it’s also a chance to embed the good savings and investment habits many of us built during the lockdown. If you’ve been able to keep working and earning, then during this time you have created the best conditions to capture the innovations that have taken place in the financial world over the past decade, whether it was the development of the robo-advisor OR is the beginning of free trade.
In my new book, Own It, I explain how many of us are in a great place to launder at least some of the money in our checking account / savings and let it grow over the long term. The sooner you start the better as you benefit from compound interest AND stock market growth, both of which are much more impressive over longer periods of time. They can give yourself a huge head start on some of your biggest dreams, or at least use your money to pay off debts, build a buffer, and feel more in control.