Wealth of younger generation '˜depends how much parents have'

The amount of wealth that younger generations will end up with is more likely to hinge on how well off their parents are than was the case for older generations, research suggests.

Parents going through their financial. Picture: PA Photo/thinkstockphotos.

The Institute for Fiscal Studies (IFS) warned that today’s young adults will find it harder to create their own wealth than previous generations, with implications for social mobility.

The think-tank found that in general, younger generations are more likely to receive an inheritance than older generations were – but the way in which cash is passed down looks set to be “highly unequal”, with those who are already well off tending to inherit the most within each generation.

The IFS said that ranking current pensioners by their lifetime income, those in the top fifth (20 per cent) have inherited four times as much as those in the bottom fifth on average.

The IFS said inheritances will become more important for younger generations – and from 2002-03 to 2012-13, the wealth of elderly households containing people aged 80 or over increased by 45 per cent, mostly as a result of higher home ownership levels and rising house prices.

Nearly three-quarters (72 per cent) of these households now expect to leave an inheritance, up from 60 per cent a decade ago. Older people also expect to leave bigger inheritances. In 2012-13, 44 per cent of elderly households expected to leave an inheritance of £150,000 or more, compared with just 24 per cent in 2002-03.

Younger generations have already become more likely to inherit or to expect an inheritance than their predecessors.

Of those born in the 1970s, 75 per cent have received or expect to receive an inheritance, compared with 61 per cent of those born in the 1950s and less than 40 per cent of those born in the 1930s.

Within the younger generations, those with higher incomes are more likely to expect an inheritance, the IFS said. Of those born in the 1970s, nine in 10 (87 per cent) of the top-income fifth have received or expect to receive an inheritance, compared with six in 10 (58 per cent) 
of the lowest-income fifth.

But even for those who are less well off in the younger generation, inheritances have become more important, the IFS said. The lowest income fifth of those born in the 1970s are more likely to have received or expect to receive an inheritance than the highest income fifth of those born in the 1930s.

Andrew Hood, an author of the report and senior research economist at the IFS, said: “Today’s elderly have much more wealth to leave to their children than their predecessors did, primarily as the result of higher home ownership rates and rising house prices.

“At the same time, today’s young adults will find it harder to accumulate wealth of their own than previous generations did, due to the sharp fall in home ownership for that group, the dramatic decline of defined benefit pensions in the private sector and the stagnation in their incomes.”