Our gilded youth: millenials have never had it so good

Millennials are poorer than their parents were at their age, have worse prospects and will struggle to ever own a house. Is that true? No it isn’t, says Max King.


Ridicule is nothing to be scared of: millennials will soon be lamenting the state of youth
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Millennials are poorer than their parents were at their age, have worse prospects and will struggle to ever own a house. Is that true? No it isn't, says Max King.

When I started work in September 1978 as a graduate trainee at what is now KPMG, I was on the princely salary of £3,190. It didn't seem much at the time, but it included all the tuition necessary for three sets of exams, which, with no retakes, made me a qualified chartered accountant after three years. After a tax-free allowance of £965, income was taxed at the standard rate of 34% (there was a minuscule 25% band of £100). The standard rate fell to 33% before the 1979 election then to 30% following it. In addition, employee's national insurance (NI) was deducted at the rate of 6.5%. So, after £955 of deductions, I was earning about £186 a month, though I got a 13% pay rise on passing graduate conversion exams in April 1979.

Graduate trainees at KPMG in London now get at least £30,450 a year, of which the first £11,500 is tax-free. Thereafter, the standard rate of income tax is just 20%, though the employee NI rate is now 12%. These deductions cost £7,644, but there are also £850 of student-loan payments to deduct at the rate of 9% on earnings over £21,000. The KPMG trainee is left with £1,830 a month. So in the 39 years since I started, gross pay has increased 9.5-fold and net pay 9.8-fold, while the retail price index has multiplied 5.4-fold. In real terms, net earnings have compounded at about 1.5% per annum. Despite student loan charges and the near doubling in the rate of employee NI, total deductions have fallen from 30% to below 28% of gross salary.

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The housing-crisis myth

But surely the cost of housing has rocketed since then? No. In the days of rent controls, private-sector rentals were hard to find, while company lets or council flats were out of bounds. Available flats were of the standard later shown in the TV comedyMen Behaving Badly. A flat share in Earl's Court cost me £90 a month. The tenant below, Stuart Goddard, could have been mistaken for a stockbroker, but soon made a name for himself as Adam Ant (my former neighbour is pictured).

Those with money could have bought a small house in the up-and-coming area of Fulham for £40,000 but, for graduate trainees, this was totally unaffordable. Even with tax relief on interest payments up to a loan value of £25,000, payments on a 100% 25-year mortgage would have come out at nearly £300 a month, assuming an interest rate of 10%. Not that 100% mortgages were on offer; they arrived in the 1980s and were initially a bit of a fiction since they were based on a "valuation for mortgage purposes", which was invariably 10% below the actual price. As now, buying without parental help was all but impossible, unless you worked for a bank that offered cheap mortgages to staff. This explains why smart graduates headed for the financial sector. The rest of us looked enviously at the prices our parents had paid ten or 20 years earlier for houses that had since multiplied in value.

A comparable house today might cost £700,000, so a 100% 25-year mortgage with a 3% interest rate would cost £3,350 a month. This is more than 11 times the comparable cost in 1978, but nearly half the monthly cost would be loan repayments against just 9% then. We all bought our first property at a much younger age then than nowadays, but this was not because it was any more affordable; rather, it was because we tired of our grotty flats and stretched ourselves to the limit financially.

They've never had it so good

What about other costs? Back then, a tube journey from Earl's Court to Blackfriars cost 70p now it's only £2.90. Most non-commuter train fares, the price of cars and the cost of flying have also lagged significantly. So have telephone bills and council tax. On the other hand, gas and electricity prices have risen steeply, partly due to the imposition of VAT at 5% and subsidies to renewable energy. The standard rate of VAT is now 20% against just 8% in 1978, though it rose to 15% in 1979.

So millennial graduates are hardly hard done by. What do they spend their extra income on? They eat out a lot more, go on more holidays and buy cappuccinos. They employ builders and decorators and most don't even know what DIY is. They go to the pub less, cook less, boil the kettle less and drive less. My generation thinks them extravagant, just as our parents thought we were. We wondered how we would ever match our parents' standard of living but, of course, we did just as today's youth will be better off than us and will have to put up with the moaning of the next generation in 25 years' time.

Max King
Investment Writer

Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.

After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.