It was the year that Donald Trump announced the launch of his successful presidential campaign; the year Princess Charlotte was born; and Adele made her comeback as a musician after a long hiatus.
But what we couldn’t have realized at the time is that 2015 ushered in a financial golden age that would last for five glorious years.
According to exclusive research conducted for The Mail on Sunday by wealth manager Interactive Investor, 2015 marked the first time in HISTORY that less than half of an average worker’s salary was absorbed to meet essential housing, energy and utility bills. food, leaving plenty to save and spend. in luxuries and vacations.
During this five-year sweet spot, says Interactive, food absorbed 12% of the average salary of £27,560, while energy bills only accounted for 4.6% and mortgage payments accounted for 28%. In total, just under 45 percent.
Today, the equivalent portion of wages paid for these essentials is 66 percent. And with high interest rates here for the foreseeable future, and mortgage costs rising as many homeowners abandon cheap fixed-rate loans, this percentage is more likely to rise than fall.
However, the current pressure on household finances, felt especially by young people, must be put into historical perspective.
Interactive’s Alice Guy, who compiled the analysis for the MoS, says: “Those who began adulthood in the 1970s and 1980s will remember a time when their finances were so tight they barely had money to make ends meet.”
“Deals like eating out were a rare luxury, while many people’s annual vacation was a day trip to the beach or a few nights at a B&B.”
The data Guy analyzed, drawn from the Office for National Statistics and the Association of Building Societies, shows that in 1990 more than 92 percent of the average wage went to housing, energy and food bills.
From the 1970s through the early 1990s, interest rates remained persistently in double digits, while inflation dwarfed the current rate of 8.7 percent. For example, inflation reached 25 percent in 1975, while base rate and mortgage rates reached respective highs of 17 and 15 percent.
But Angus Hanton, co-founder of think tank Intergenerational Foundation, says that historical analysis belies the fact that today’s youth face acute financial pressures, especially on the housing front. He says: ‘There’s a big difference between now and the 1970s. Back then, we had much lower house prices. For example, I bought a house in 1983 for £17,500 that would be worth £51,000 today if it had increased in line with inflation. But the steady growth in house prices over the last 40 years means that its current value is more than 20 times that of just over £1m.
And he adds: “The high interest rates are also affecting more because we have encouraged young people to borrow up to the limit.”
One of the traditionally largest household expenses that costs significantly less today is food. The weekly grocery store has absorbed less and less of our income since 1970, when workers spent 39.5 percent on food. Today, the typical worker requires just 11.5 percent. Says Hanton: ‘Now, you have Lidl and Aldi keeping the prices higher. These discount stores create competition. Previously there was more of a monopoly in the food retail market, which kept prices higher.’
Guy from Interactive agrees. She says the era of large supermarkets with economies of scale, combined with modern farming methods, has helped drive down the cost of a family-owned grocery store over the past 50 years.
However, the price of food has risen 18.4% over the last year and is absorbing a much larger share of income.
Hanton warns: “Many young people have gotten used to eating out regularly, but that is becoming increasingly unaffordable.”
An energy crisis has added further strain to households in the past year, with costs far exceeding inflation.
Household energy bills doubled last winter to £2,500 a year for the average household. More than 7.4 percent of people’s income is now used to pay energy bills, the highest percentage since 1985. Between 2000 and 2020, energy costs never exceeded 5 percent of average income.
Late last month, the head of energy provider Centrica warned that energy prices would remain stubbornly high. Over the past 30 years, the generation that has been hit hardest by the rising cost of household essentials has changed.
Hanton says. ‘In the 1990s, retirees were the generation most likely to live in poverty. Today, retirees live much more comfortably thanks to the triple lock state pension, universal benefits, guaranteed income from defined benefit occupational pensions, and the comfort of equity accumulated in their homes.’
He says one in four people over the age of 65 live in ‘millionaire households’ if housing wealth and pensions are taken into account.
Instead, a record number of twenty-somethings are moving back in with mom and dad because they simply can’t afford to live independently. Hanton says that so-called millennials, born between 1985 and 1995, are getting “hit from all sides.”
He says they need to spend more on daily living essentials than their parents. ‘Beware of complaints about wasting your money on mobile phones, laptops and the Internet. These items are now essential to finding and staying in a job,” he adds.
Additional costs, such as student loans and childcare fees, mean that many young people are forced to survive on a shoestring budget.
Every generation believes it should win the prize for facing the toughest financial headwinds.
There is no denying that a larger share of household income went to food, energy, and housing costs between the 1970s and the early 1990s. But today’s youth are facing unprecedented financial hardship. They must not be forgotten.
If only we could go back in time to 2015.
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