Why financial inequality can't simply be blamed on older people hoarding their wealth

Millennials are typically spending three times as much money on housing costs as their grandparents, according to recent research from the Resolution Foundation think tank. It has warned of a tight spending squeeze for young people.

But stark inequalities such as these between generations should not blind us to the staggering inequities to be found within generations: this is an issue that is every bit as intra-generational as it is intergenerational.

This is the result of my recent research, a three-year project exploring intergenerational relationships within families by examining the giving and receiving of lifetime gifts. The study was carried out in the context of warnings from organisations such as Policy Network and the Intergenerational Foundation of potential conflict between “wealthy” and “poor” generations.

Defining lifetime gifts as those worth £500 or more, we interviewed members of different generations from 15 families, each of which featured a baby-boomer born between 1945 and 1965. We then carried out two surveys, each questioning around 2,000 people, about the giving and receiving of major financial gifts within families.

Who is helping who

What we found was that social, economic and demographic factors are generally pushing the UK’s families together rather than driving them apart along generational lines. People may be even more determined than they used to be to help members of their own families.

The problem is that some are simply far better placed than others to do so. Some are easily able to provide support, whereas others are essentially incapable. And it is this dichotomy that is entrenching the gap between rich and poor and reducing equality of opportunity for all.

According to our study, in 2014 just 22% of British adults – fewer than one in four – had received one or more gifts of £500 or above from family members. Crucially, such gifts were far more common within middle-class families, whose members could usually find the necessary funds from their existing income or savings. By contrast, the older members of working-class families were often able to support younger generations only after selling possessions or taking out loans themselves.

Middle-class families were more likely to finance education and housing, while working-class families were more likely to fund debt repayment and everyday expenses.

These disparities barely qualify as subtleties. They are harsh, socioeconomic facts. Yet somehow they have come to be all but lost amid the relentless young-versus-old narrative – a misrepresentation crystallised in the recently growing conviction in a range of quarters that the protection received to date by pensioners against welfare cuts cannot continue.

The conceit that the only way to support the young is to penalise the old is typical of the bent for viewing financial inequality exclusively in inter-generational terms. According to our research, such a philosophy is wildly at odds with popular opinion, irrespective of age or wealth. In keeping with voters’ outraged response to Conservative proposals for a “dementia tax” during the 2017 election campaign, we found scant appetite for such measures across any demographic.

Instead, we found a belief throughout all social classes that the state still has a major role to play in providing support in addition to that offered by families themselves. This was particularly the case in relation to social care for older people.

Tax shift

So are there any genuinely feasible alternatives to raiding pensioners’ pockets? One potential answer could be a more progressive system of wealth taxation – one that targets people on the basis of wealth rather than age. Inheritance tax, for example, could be reframed so that it is truly an inheritance tax rather than an estate tax, with unearned wealth received during one’s life (either through large gifts or bequests) taxed in a way similar to earned income.

No changes to a tax system are likely to prove universally popular. There would inevitably be resistance in some quarters. Yet at least this solution would have no immediate and concrete impact on people during their lifetimes.

It is time to acknowledge that much of the debate around financial inequality has generated far more heat than light. It may be time, too, to admit that a misguided focus on inter-generational divisions has been at best counterproductive and at worst a smokescreen for cuts in social care and social security for older people at a time when attention would have been better directed elsewhere.

Karen Rowlingson received funding from the Leverhulme Trust to carry out the research on which this article is based. Further details can be found in Rowlingson, K, Joseph, R and Overton, L (2017) Inter-generational financial giving and inequality, published by Palgrave Macmillan