Young bear the brunt as recession takes its toll

Published on Saturday 20 March 2010 12:43

IN EACH recession, a few groups feel the downturn more intensely than the population as a whole. This time unemployment is taking the heaviest toll on young people.

According to the latest jobless figures, unemployment among 18 to 24-year-olds in Scotland grew by 13,000 over the past three months, bringing to 50,000 those without work in this age group, or one in four of the total 201,000 looking for a job.

Applications to university have climbed by around 30 per cent for the coming year. Many will be disappointed. A spokesman for Ucas, the body which manages applications, said: "It is safe to assume that the number of unplaced applicants will go up as well."

Youth unemployment matters because the longer you are out of work at the start of your career, the less you earn for the rest of it. You are also more likely to be hit with periods of unemployment in the future.

Even when the current crisis is over, today's young people face many challenges such as poorer social mobility, high house prices and an emasculated pensions system.

We compare the prospects of those graduating today with those of their parents 30 years ago to see whether the generation gap has widened.

Student days

In 1980 only a small percentage of school-leavers went to university, around one in ten, as most were required to go out to work to ease their family's financial burden.

Those who did go on to study did not have to pay fees, and would also receive a maintenance grant from their local authority. However, this grant was means-tested on their parents' income.

Even working-class families on modest earnings could be asked to pay significant sums, while the offspring of professionals often received as little as 50 per term.

Many families could not or would not make up the grant as they were supposed to do. Other funding was not available, and student loans or credit cards were unheard of, so teenagers had no option but to go out to work.

Once they worked for three years they qualified for a grant in their own right, and some young adults opted to return to study having earned financial independence. Student debts were unheard of, and most started their careers solvent.

Today student numbers have exploded, but a typical Scottish student graduates with debts of around 16,000. Tuition fees continue to be free in Scotland, but most will have to rely on a loan or parental support to fund their accommodation.

If your parents jointly earn more than 55,550 then you qualify for a miserly 915. There is extra help for the less affluent. You may qualify for a bursary of 2,640 a year if your parents' joint income is 19,310 or less. This is paid by the Student Awards Agency for Scotland on a sliding scale which goes down to zero for household income over 34,195 a year.

Despite the financial difficulties, student applications have soared this year by 31 per cent, up more than 9,000 to 38,763 in Scotland. Students are thinking more about future careers and pouring into the medical field, where spending has been ring-fenced. Nursing has seen a 74 per cent increase in applications, medical technology is 47 per cent up, anatomy is up 32 per cent and biological sciences has seen a similar increase in applications.

Similarly there is a 32 per cent rise in those wanting to go into teaching and 41 per cent in social work.

Tax

The state took more of your pay packet when you did begin work back in 1980, with the starting rate of 30 per cent, rising to 60 per cent. Today basic tax starts at 20 per cent and then rises to 40 per cent. However, National Insurance was much lower in 1980, at 6.75 per cent on earnings up to 8,580 only, which was little over average pay. Now it is charged at 11 per cent up to 43,875, and 1 per cent above that, so it is a heavier burden.

On top of this, homeowners could cut their tax bill via mortgage interest tax relief, which deducted mortgage payments from pre-taxed earnings. This gave them 25,000 of tax-deductible borrowings, which was slightly more than the average UK house price at the time. Today it would be equivalent to a tax-deductible allowance of around 175,000.

Furthermore, modern youngsters face the prospect of higher taxes in the years to come, to pay the costs of an ageing population, including a burgeoning state pensions bill, index-linked public sector pensions and the cost of long-term care, as well as to reduce the public debt.

Housing market

According to the Council of Mortgage Lenders, an average home in Scotland in 1980 cost 21,754, which was 3.3 times the average male wage at the time of around 6,500.

Today's average house price north of the Border is 155,618, according to the Registers of Scotland, which makes it six times higher than the average male wage of 25,683. This means young people face significantly higher hurdles than their parents if they want to buy a home. Not only must they borrow more, but their interest is not tax-deductible.

Interest rates were much higher at that time, with average mortgages costing an eye-watering 14 per cent, compared with 4.52 per cent today. However, inflation was also much higher. The typical Scottish home had doubled in price within ten years, along with wages, which had the impact of halving the debt in real terms. Today there is no debt-eroding inflation to ease the borrowing burden, which is a millstone for much longer.

Pensions

In 1980 more than six million staff at private companies were paying into a pension which guaranteed that their income in retirement would be based on their salary at retirement.

That number has now fallen to 2.6 million, according to the latest data available from the National Association of Pension Funds. Most of these will have joined their scheme many years ago.

Few young people working in the private sector have access to such high-quality pensions, but must instead rely on some form of investment-based arrangement, either with their employer or in a personal pension. However, employee and employer contributions combined are likely to be only around 10 per cent of salary, compared with the 20 per cent plus pumped into final salary schemes.

This means they must either invest treble what their parents did to earn the same pension or expect half the pension at retirement.

Regardless, today's novices will in all probability have to wait until they are 70 to pick up a state pension. That is if the country can still afford to pay it when they retire.

Winners and losers in the generation game

Mum's view

Linda left school at 17 and started as a trainee nurse at the Royal Hospital for Sick Children in Edinburgh, where she still works today.

Linda lived in the nursing home and was paid 26 per week, from which she also had to contribute towards her living accommodation and pay for food.

She married at 20, and she and her husband bought a two-bedroom flat in Brunswick Street for 4,000. "When we bought the house, my salary wasn't taken into consideration. It wasn't in those days."

Before long she was expecting, so she left her job. "You had to. There wasn't any question of keeping a job open for you. You couldn't come back. And you cashed in your pension at the same time."

Linda was out of the workforce for six years before returning part-time. She has worked primarily in nursing ever since, and is now a specialist in pain management. Despite a career with the NHS she has no public sector pension. "Because I worked part-time, and had career breaks, it wasn't easy in those days to maintain your pension."

She has moved twice and now lives in Morningside in a house worth about 600,000. Linda believes her daughter has more freedom but faces pressures she never did: "Many parents help out much more and that is accepted as the norm. Young people have different kinds of opportunities. On the other hand, it is much harder to get onto the housing market and many people with similar jobs to me may never get on to it."

She also worries young people face pressure to "have it all". She said: "It would have been inconceivable in my day to open a women's magazine and see handbags for sale at over 2,000 and the expectation that you should want to buy one. That is a huge pressure."

Daughter's view

Jenny, 25, studied for a degree in health sciences and health promotion.

Her parents had taught her to be wary of debt, so she worked every holiday. Nevertheless, she emerged with a 5,000 student loan, which is being deducted from her salary.

"When I left university, I didn't have a clue what I wanted to do, so I came home to live with Mum and Dad while I tried to figure it out. I worked for a while, and a friend was travelling in New Zealand, so I decided to join her and see Australia and Hong Kong.

"But after a while the money ran out, so I had to come home to earn some more money so I could go off again."

To fund her plans, she took a job as a receptionist at Edinburgh University, and while she was there the University Development and Alumni Department offered her an assistant's job, which was a career post at a decent salary.

She says: "I had never heard of this kind of work before, but I thought I would give it a go, and I really liked it. So I've stayed."

Jenny now shares a rented flat in Edinburgh and says she doesn't have much spare cash. "Edinburgh is expensive, but I enjoy life," she says. "And I have enough to meet my shopping needs. I like to go shopping and buy clothes, handbags and shoes. My mother has a thing about very expensive handbags. I wouldn't spend a fortune, but I do like shopping."

Jenny believes her parents were more serious-minded at her age, but says that, for her, getting on the housing ladder is pretty much out of the question. "I can't see how I could ever get a house like my mum."

But Jenny does have a final salary pension, so is luckier than most.