Children of the recession

Listening to Mervyn King’s appearance in front of the Treasury Select Committee on Tuesday, complete with warnings about the fragility of the ‘nascent recovery’ and the possible reintroduction of quantitative easing, I started thinking about the next generation’s relationship with money.

Anecdotal evidence suggests that people’s attitudes to money and debt are shaped by experiences in their youth. A quick comparison of the World War Two generation with ‘baby boomers’ – the first group to really embrace home ownership – effectively demonstrates the difference between growing up in the prosperous 1960s and the depression-hit 1930s. Take it a stage further to those born in the ‘loadsamoney’ 1980s and the contrast is starker still.

This is backed up by research which suggests that people’s outlook is most susceptible to the effects of recession between the ages of 18 and 24. So can we expect the next generation of graduates to be committed savers, avoiding debt where at all possible? And if so, what effect will this have on the wider economy?

Logic suggests that a more debt-averse culture will see people hold off buying homes until they are comfortable with the debt as a multiple of their income. A depressed employment market – and there is enough slack in the system to ensure that promotions and pay rises will be at a premium for the next few years – will see house purchases delayed further still.

Which brings us back to a familiar theme, namely the UK’s need for a professional rented sector. With people waiting longer before buying, they need somewhere to live and institutional involvement is surely key to this provision.

After all, the next generation can’t all live with their parents.