11/12/2014 01:31 GMT | Updated 26/01/2015 05:59 GMT

The Generation Game: Managing Money Through the Ages


The verdict on Generation Y so far is that they're lazy, narcissistic, entitled and materialistic. Broad generalisations are dangerous, and comparing generational characteristics is arguably nothing but a parlour game; but when it comes to money, today's young do seem more profligate.

Of course, many Gen Yers would argue that being lazy, narcissistic, entitled, materialistic and irresponsible with money is exactly what your 20s are for - come back in ten years when we've figured out what's what - but the (possibly unfair) generalisations aren't entirely groundless, and if they're true, may foreshadow a serious problem.

Eat. Sleep. Work. Repeat

Anecdotally, the new paradigm seems to be 'why save when I could spend it now?' This attitude may draw disapproving looks from parents who spent decades saving for a home and university education for their ungrateful progeny, but its not without reason.

For most Gen Yers, there's a sense of hopelessness fuelling their carpe diem. The cost of living is inexorably rising. Sky-high rents have rendered the idea of any significant disposable income practically laughable, let alone the notion of saving for a deposit. So when they do have money, faced with the responsible choice of saving - staying in with a 'special occasion' grab bag of Quavers, dreaming of a house they'll never afford - and having fun for once, they do the latter. A small escape from the relentlessly grey grind of living hand to mouth. Eat. Sleep. Work. Repeat.

Up the income scale, rich, entrepreneurial Millennials are more willing to spend their money to enjoy life now rather than continually forego pleasure for some hypothetical 'rainy day' as their predecessors were more inclined to. This is partly a cultural difference, but also, as accountant Shawn Meade related in the New York Times, spending is sometimes now encouraged by financial advisers. After all, what is money worth until exchanged for something with intrinsic value?

The safety net generation

For a great deal of Millennials, at either end of the income scale, a defining characteristic that may help explain the 'spend it now' attitude is the existence of a safety net. Financially prudent parents who only wish their children need go through the austerity they did are merely witnessing that wish in action. For much of Generation Y, the money will never run out.

Their parents have a home. A steady income. Some capital in the bank. The baby boomers, learning from their parents' genuine war-time insecurity, built a solid bedrock on which the new generation can play. The lack of real risk explains both poor twentysomethings partying to forget their poverty and rich online entrepreneurs refusing to clasp their cash with an iron fist. If they run out of money they can always call Mum and Dad.

Equally, having seen the effect of the financial crash of 2008 on their parents' diminished pension pots, how close the entire financial system came to collapse and the continuing farce of an ever-inflating housing bubble; perhaps today's young adults simply don't trust the system. Why play by the rules when the rules keep changing?

Post-war kids

Given that baby boomers didn't actually go through the war themselves, and grew up after rationing had ended, why would they not have been equally as irresponsible with money?

Just as there are two prongs to Millennials' spending, there are two for baby boomers' saving. Those with little money would likely have come from parents of similarly diminished means. Parents who may have faced very real ruin during the Wall Street Crash or WWII. Parents who learnt to make do and mend, who knew rationing all too well. Who may be no safety net to fall on. Lessons tend to last a generation, and the incentive to save was to avoid a destitution not so long ago.

For those with more money, the same lessons apply, coupled with a more affordable property market (chiefly). Saving was a worthwhile pursuit when a house deposit wasn't ten times what it was only two decades ago.

When inflation routinely outstrips wages - house prices even more so - rationing and the War were two generations ago, Mum and Dad have assets and cash has been nearly replaced by ephemeral numbers on a screen, is it any surprise the culture of saving is being lost?

The generation game

Generalisations may be dangerous. But let's continue to assume that Generation Y are a cohort of spenders. You either sympathise with the genuine economic challenges they face, or you think they're a bunch of whingers who don't know how good they've got it. A little more self discipline (and fewer pairs of trainers) and life doesn't have to cost so much.

Either way, the fact is today's young can do what they like with their money without much consequence for anyone else. In fact, spending is the best way to secure our recovery. More power to them.

Until they retire.

Estimates on how large a pension pot you need for a moderately good standard of living in retirement vary from around £220,000 (to match the minimum wage) to over £300,000 for a 'basic cost of living'. With the demise of final salary pension schemes, these figures are undoubtedly higher than they used to be.

Long story short: to avoid mass-scale retirement poverty in fifty years time (that will be a problem for an increasingly stretched welfare state) Millennials have a greater need to save than their parents; but less inclination (and/or means, depending how sympathetic you are) to do so.