The average wealth gap between households aged in their 30s and those of their parents’ generation in their 60s has shrunk by £86,000 over the past five years, according to a think tank.
Britain’s “wealth boom” has started to unwind since interest rates started rising in response to the recent inflation shock, the Resolution Foundation said.
The Bank of England base rate increased from 0.1% to 5.25%, with two recent cuts taking it down to 4.75%.
We can be sure that more wealth will be transferred down through the generations. This poses questions about how young people can hope to get on in life without the help of family wealth
Simon Pittaway, Resolution Foundation
Researchers found the typical household wealth of someone who was in their 60s in 2018-20 has fallen by 16% over the past five years, from around £470,000 to £390,000 in today’s prices.
The typical wealth of someone in their 30s in 2018-20 has risen by 17% over the past five years, from around £50,000 to £59,000, with house price gains made before and during the pandemic having only partly been eroded by higher interest rates and inflation.
As a result, the gap in typical wealth between these two groups has shrunk by just over £86,400 in real terms, from £416,354 to £329,934, the foundation said, marking the smallest gap in more than a decade.
The report, published as part of a partnership with the abrdn Financial Fairness Trust, said that, despite recent falls, much of the wealth boom remains to be passed on down the generations in the form of inheritances and gifts.
The foundation said policymakers should continue to help vulnerable households build financial buffers and reform the tax system to ensure those with high wealth pay their fair share.
Simon Pittaway, senior economist at the Resolution Foundation, which is focused on improving the living standards of those on low-to-middle incomes, said: “For much of the past four decades, Britain has enjoyed an uninterrupted wealth boom.
“Falling interest rates have driven up the value of pension pots and house prices, with household wealth hitting a real-terms peak of £21 trillion in early 2021.
Not only are the wealthiest more likely to receive an inheritance or gift but they also gain larger sums…
Mubin Haq, abrdn Financial Fairness Trust
“Rising wealth levels have not led to rising inequality here as they have in the US.
“Greater home ownership has reduced inequality among older households, though later falls in home ownership have widened wealth gaps between them and younger households.
“But rising interest rates has seen household wealth fall by over £2 trillion, with those in their 60s seeing the biggest reduction in wealth.
“While there’s no guarantee that rising wealth will resume, we can be sure that more wealth will be transferred down through the generations.
“This poses questions about how young people can hope to get on in life without the help of family wealth.”
Mubin Haq, chief executive of abrdn Financial Fairness Trust, said: “Not only are the wealthiest more likely to receive an inheritance or gift but they also gain larger sums…
“Such windfalls can be critical in determining who is able to step on to the housing ladder and are likely to increase absolute wealth inequality.”
