UK Millennials are doing fine

Stop worrying about student loans and buying a home

Yesterday this programme caught my eye:

Britain’s Wealth Gap: The wealth gap between young and old has become a defining feature of our times. Spectator Editor Fraser Nelson reveals new figures showing the extent of the gap and investigates its causes.

I admitted on Twitter that I was pre-disposed to like it before it aired but having now watched it I don’t think it went far enough in arguing for millennials to be more positive about their situation than they are.

The three main complaints that those interviewed in the programme had are that millennials spend more on rent, are less likely to own their own homes and graduate with a load of debt. I want to address all of those complaints, and all the people who make them, in turn.

Renting

Yes you’re spending more in rent — but the money you’re not spending on housing buys a much better experience. Clothes are cheaper, flights are much, much cheaper and there is a wider variety of food for different diets and tastes available (it’s also cheaper). That means that after you pay for the necessities of life you have more options for days and nights out.

Lots of other countries get by through renting. The UK has a weird fascination with property — most people want to own a home without really thinking about what that means. Lots of people want to spend money on a home so they can spend more money on changing the bathroom.

Renting has a lot of benefits. You can move for work, your landlord keeps up the property for you, you’re able to live with friends more flexibly. If you want to decorate go ahead — there are lots of blogs with rental decoration tips. When you rent, very few things are your problem.

Buying a home

Yes — you’re less likely to own your own home. Big deal. There are other financial investments open to you if you want to invest a big chunk of your money.

First, don’t do things because everyone says it’s the right thing to do. Your situation will be different from everyone else’s situation — don’t do things because your parents did them.

Second, if it is the right thing to do for you then go ahead and use that huge disposable income to save for that deposit — that means fewer holidays, nights out, theatre trips, takeaways, etc.

The average salary for someone with 1–4 years of experience is £24,000 gross / £19,487 net. If you have a post 2012 student loan your repayment is 9% of everything above £21,000. 
9% or £3,000 = £270.
So post tax and student debt you have £19,217 a year to live on.

As a general rule of thumb (your situation may be different etc) you should spend 50% on your living costs — rent, bills, weekly shop etc.
That gives you just over £9,600 as your disposable income.

The Government’s ‘Help-to-buy mortgage guarantee scheme’ (1) means you can buy a property with a 5% deposit for properties worth up to £600,000 — a one bedroom flat in most London postcodes is around £400,000.
5% of £400,000 = £20,000 deposit
£20,000/£9,600 = 2.08 years

You can do that. Is that too long? Or you don’t want to scrimp in order to save? Buy less than you can afford, buy with a partner, or even buy with a friend.

No, it’s not going to buy you what it got your parents but if it’s a foot on the ladder that you want there it is. It might not be your best option (speak to an independent financial adviser etc), and you then have to find a property that you like and that is in an area that you’re happy with and within your budget, but you can do that.

So if you really want to buy a home, go ahead.

Student Debt

Let’s get this out of the way. Our tuition fees system is nothing like the system in the USA. If you ever feel bad about your UK student debt go watch the documentary Ivory Tower.

That aside, yes UK students still graduate with debt — those same students also have far more opportunities to learn, earn and live.

Tuition fees were introduced in September 1998 and have been increasing ever since. As more and more people go to University that only makes sense. Why? Because after you graduate you’re likely to earn more than someone who didn’t go to University. That’s reflected in the price of your course.

Point One — everyone can afford to go to university. Due to the structure of the loan, everyone can afford to go (2).

The debt is ridiculously good value. You pay 9% on all earnings over £21,000 — if you can’t find work after you graduate there will be nobody repossessing your assets (3).

If you get a median salary graduate job that pays £30,000 you pay back £810. If you’re earning the national average of £24,000 you pay back £270. You’ll be paying it off for a while but it comes straight out of your paycheque and nobody can say you’re being stolen from when you can least afford it. Just check your mail and tell the Student Loans Company what you’re doing (travelling, working, further education) so they don’t fine you, but otherwise you don’t have to worry about it.

It’s also written off after 30 years. Say you have loans of £54,000 (3 years of tuition + maintenance) but for whatever reason you only ever earn £30,000 (we’re ignoring interest and inflation). £810 * 30 years = £24,300. Then you’re done. That extra £29,700 is on the taxpayer.

So worst case scenario is that you earn 9% less than you should do for 30 years because you did a course that wasn’t right for you. Which brings me to….

Point Two — £54,000 is a lot of money(4). You’re expected to put some thought into it.

Having just gone through the process of looking at universities with my brother I’m amazed at how many awful courses and universities there are out there. If you’re doing a hands-on-course what real experience are you going to get? If you’re doing a more ‘academic’ course what opportunities are there for leadership and personal branding?

In all cases what percentage of graduates from your course are in further education or a job one year after graduating? Look specifically at the ‘job’ section of that pie chart, because as you may find out many graduates who are unable to find work go on to do another degree.

But even if you pick a terrible course that gets you nowhere— the worse case scenario is that you earn 9% less than you should over the course of 30 years because you picked a course that wasn’t right for you, or was from a university with terrible post-graduate employment rates or because you thought getting a degree was enough (if nobody has told you this yet — it’s not. You need to be doing work experience, or heading a society, or getting a 1st class degree, or something).

The moral of the story

So you’re not going to own a house but you don’t have to worry about your tuition fee repayments. But your parents were adults by now — they had a mortgage and kids and a car.

Well tough, the singularity isn’t coming and your situation isn’t going to change overnight. Even if the government decided tomorrow to make all the policy decisions you’re hoping for all at once they wouldn’t affect you for another 2 years.

If you want to be an adult start a pension pot — you’re going to live longer so you’ll want to start saving. The terms of your pension will be less generous because the population is declining but compound interest is magic.

My generation has so many more choices than my parents generation did. There’s greater religious and sexual freedom, greater understanding of mental health and better access to information. You’re also living in a time of steady inflation and declining poverty. We have different problems, whether those are better or worse than the problems of another generation is a different matter.