How educating Gen Z differs from advising the older generation

0:12Welcome to the latest Margin Notes podcast with me Simony Kiriakou, editor of FTAdvisor. We are fast approaching Budget Day 2025 and all eyes are on the Chancellor to see which levers are going to be available for her to pull, if there are any. At this stage, everything is speculation and nothing is certain, well, apart from the certainty that there will be more pain for some parts of society after the budget. But as the nation is all talking tax and fairness, so too a growing cohort of younger people are questioning how to plan for their futures in a world where their presence seems very financially unfair.

0:48They've got high taxation, high house price inflation, below CPI wage growth and ever-rising rents, and all these are pushing many Gen Zedders into leaving big decisions for much later on in life. And the knock-on effects of this are clear for all to see. So on this podcast, we're joined by our special guest, Malvi Vajra, She's a chartered financial planner and she works with the Rathbones Advice Team. She's an ex-Leeds University alum, same as myself, although she is a millennial and I'm one of those rabid Gen Xers. Malvi joined the business in 2020 and prior to that she worked within a boutique wealth management firm advising high net worth clients including accountants and barristers.

1:27Welcome Malvi. Thanks, hi. Good to have you, good to have you. Thank you so much for joining us. And also on this podcast is Harrowood Mills. He's a Gen Z-er who's interning with FT Advisor. He's going to be reading a short report based on his research into intergenerational inequality before we get into our discussion. So straight over to you, Heroard. Thank you, Simone. It would take the average earner 52 years of work without spending a penny to move from the middle to the top of Britain's wealth distribution. That is according to research published earlier this month by the Resolution Foundation.

2:02Between 2006 to 2008 and 2020 to 2022, the wealth gap between people in their early 30s and early 60s grew in real cash terms from£135 ,000 to£310 ,000. The report said the increases primarily benefited the already wealthy, with gains flowing disproportionately to older home-earning families. And that since 2010, the majority of wealth increase came from passive gains, such as rising house prices. A separate report by the Resolution Foundation found that the share of wealth held by those over 60 had increased from 39 % in 2008 to 49 % in 2022. So how did we get to a situation where wealth is concentrated among elderly homeowners?

2:46How are social and economic factors exacerbating the intergenerational wealth divide? What does a generation of elderly people holding all the loot mean for the future of the financial advice sector? And what, if anything, can be done? Let's start by considering the origins of the wealth divide. The Right to Buy scheme, introduced by former Prime Minister Margaret Thatcher in 1980, allowed council tenants to purchase homes at discounted rates. At that time, the average ratio between wages and house prices was low. Full-time employees could expect to spend 3.54 times their earnings on a home in England, or three times their earnings on a home in Wales.

3:24In contrast, data from the Office for National Statistics showed that in 2023, full-time employees could expect to spend 8.26 times their earnings on a home in England, or six times their earnings on a home in Wales. This has left a population divided between those who bought when houses were affordable and those who cannot afford to buy now. Then there are other contributing factors. The wealth divide is not simply a question of wages and house prices. The sale of council homes combined with a general housing shortage has led to higher rent prices. A rise in the cost of everyday goods from food to fuel has increased the cost of living.

4:01Then there are student loans. Former Prime Minister Tony Blair wanted half the country in higher education, duly achieved in 2017. But with the rise in tuition fees, students were left burdened with debt. According to government figures, the average student finishing their course in 2024 owed£53 ,000. Only 56 % of full-time undergraduates starting in 2025 are predicted to repay loans in full. Student debt, rent prices and the cost of living mean people can afford to save less of their paycheck. And even if you do acquire enough for the down payment on a mortgage, you now need a bigger deposit and more money to service higher interest repayments.

4:41Similarly, generous private pension provisions have all but dried up, at least in the private sector. Then there are costs for an increasingly elderly population. Another former Prime Minister, Theresa May, tried to reform the cost of social care in the build-up to the 2017 general election. But her policy was misconstrued as a dementia tax and the government lost its majority in the House of Commons. But proposing that people would have to pay for care out of their total assets was far from radical. The consequences compound to present a gloomy picture. For a start, a key talent of the social contract that governed Britain has ended.

5:18It is hard to participate in a home-owning democracy if you do not have a realistic chance of owning a home. The old advice of a third to savings, a third to rent and a third to spending now looks as outdated as Guinness for pregnant women or smoking on flights. The Resolution Foundation report warns, Entrenched wealth gaps reflect the growing importance of who your parents are, rather than how hard you work, in shaping lifetime living standards. According to separate analysis by the property firm Savills, In 2023, over half of first-time buyers received financial help at an average of over£55 ,000.

5:54This has led to what The Guardian has referred to as the increasingly hereditary quality of home ownership. So what are the solutions? If the problem is relatively clear, the solution is anything but. Some advocate for wealth distribution. This could take the form of a new wealth tax. Older people, mainly homeowners, have wealth. Younger people, mainly renters, do not. so it would be a case of taxing the rich to give to the poor. But as reported by the FT Advisor on October 20th, it's not quite so simple. Analysis by Rathbones has indicated that a wealth tax could cost the government£600m to set up with ongoing compliance and administrative costs of£700m a year.

6:34The report also found that£100bn of wealth could shift overseas or into less productive assets. The other form of wealth distribution is inheritance tax, which already stands at 40 % above nil rate bans. But that comes with its own set of arguments, both for and against. Addressing homeownership seems the most important reform. Building more affordable houses with lower prices, and reforming, or indeed abolishing, stamp duty could unshackle the housing market. Then there are questions of wages, a stagnant economy in the public finances, questions the Chancellor Rachel Reeves will hope to answer, on the 26th of November.

7:12Encouraging apprenticeship schemes or vocational and technical qualifications would stop so many elderly people acquiring student debt. That would help young people to save and invest. Elderly homeowners could be made to shoulder a greater part of their care costs, easing pressure on younger taxpayers. But overall, surely something must be done to ensure young people have a chance at success. Otherwise, a generation of Britons will never make a house at home. thank you very much harroward there are some very startling figures in there aren't there malvi um the way that that's been presented i mean it definitely shows as intergenerational financial equality are you seeing that with your clients is it something your clients are concerned about um yeah absolutely i think the the international longevity center they pointed out that half of adults feel that wealth is already unfairly distributed across generations um and you know the stats that harrow had pointed to are just in his words gloomy aren't they they do not make for very good reading um if i was 20 years younger i think i would balk at the fact that it's so difficult to purchase a house to get anywhere to have even any disposable income I remember when I was in my early 20s and I used to have money to put away every month it's just not the case anymore because Stan the cost of living is so high that we're not in any position to actually save any money so yes there's the I think housing supply is an issue in itself but actually getting anywhere close to building a deposit with what little you have left over every month is almost impossible.

8:59One of the things that stands out when you talk about the whole, the sort of, the intergenerational wealth inequality is the fact that over the last 20 years or so, government spending per pensioner has risen by 55 % compared to 20 % per child. So just think about that. That's, you know, that's quite a wide gap and when we talk about the biggest benefits that pensioners get as opposed to children child benefit versus state pension the state pension is a much bigger amount per person it's um it's got the very favored triple lock on that as well whereas child benefit hasn't increase to that level um and and the biggest thing that i think affects all households at the moment is the is the fact that child benefit um if one person in a household earns over 80 000 pounds you cannot get child benefit at all um so the cost of child care in itself it's extortionate exactly so you end up with a situation where one person might be might be working might be not working at all or working part-time um and then you've got the main breadwinner who is likely to be on 80 maybe even up to 100 000 pounds but losing that very vital child benefit um as well so you know when you compare that to the fact that a lot of pensioners um do have sufficient wealth that then don't need to claim their state pension it does make make it quite difficult to stomach but children get a vote state pensioners get a vote children don't get a vote of course of course and it is a political it's a very politically charged argument because we have a rising older demographic um the the statistics are all pointing towards an increasingly older population of 50 plus you know i think by is it 50 50 or 50 55 are going to have almost parity between the number of over 55s and under 55s.

11:11And then if you consider that anyone up to the age of 18 is probably not in full-time employment, so not earning, then you've got a very small proportion of the workforce actually then shoring up the state pension by taxation. I think, you know, we saw from the figures that came in, state pension, you know, payments, thanks to the triple lock, they're now getting a, what's it, 4.8 percent, You know, that's a whole one percentage point above inflation. That seems really difficult to continue with. And even politically, I know it's a very politically charged and contentious topic, you know, to say, well, we promised that the triple lock would remain.

11:51But perhaps that is a lever that the Chancellor is going to have to pull, right? I would say so. I mean it it doesn't I don't have any stats to hand but I think child poverty in this country is a big big issue as well so we need to be if if you want more people more more of our children to be in the workforce earning a decent amount of money I think there's a bigger proportion of investment needs to be made in in that in that age category yeah yeah absolutely I mean obviously there is pensioner poverty, that is clear, that does exist. Absolutely, but there is no lock, there is no sort of cap on state pension benefits.

12:37You could have a pension pot worth over three, four million pounds and still claim state pension. So perhaps bring in the means testing you know those figures that indeed these these are these are potential levers that the chancellor might want to pull but they're not going to be very popular ones particularly when we work across election cycles and we don't work across other things so no what other taxes do you think or what other sort of changes could actually help young people to be able to put a little bit more aside each month? Well, I think Gen Z already are one of the, you know, they already are investing.

13:19I think 80 % of under-21s were, you know, during sort of COVID times, had already started investing. 80 % of investors had already started before the age of 21. So, they are doing it. I think what's key is to make sure that, you know, there is good financial education going on there as well they use a lot of um social media to to drive that that um that influence and and to invest but are they doing the right things um so i think that's trust in traditional sort of financial um houses are is is very low and then getting all of your information from social media can sometimes be a bit dangerous i think yes unless of course it's rathbone's rft advisor of course but that's that's another another side that we we see quite a bit is that um if you're if you're someone who's young you're unlikely to have a big pot of money to invest and the cost of actually getting some good advice because there's it it's such a heavily regulated industry the fixed cost of of providing good advice is high versus the amount of money that you've got um that a young person in their 20s has got to to save so I think financial education especially in um in schools I said this to Myron yesterday but almost teaching financial education in the same way that we sort of teach sex education might might you know as something on the curriculum um and approach it in in that regard that we want children to come out of school and higher education very much equipped to know how pensions work, how tax relief on pensions work, what can ISAs be used for, what's the difference between an equity and a bond and different asset classes to make sure that you've got a diversified portfolio, not just putting your money on cryptocurrency and what the dangers of having a highly concentrated investment portfolio that's just in one asset class or one...

15:26Yeah, just in GameStop or something. Yeah, exactly. That's what my son would do. So coming back then to Herawood, I'm going to ask you, what sort of financial education did you get in school? And do you know the difference between equity and bond? Or did you know the difference between equity and bond before you worked for FT Advisor? So I didn't get much, or in fact, any financial education at school. I had a conversation with my dad probably after I finished uni. and he explained to me what he considered to be the kind of fundamentals for investing a small amount of money um and so in the end i ended up putting the kind of little i'd saved through through uni into into an index fund um which i always if i'm speaking to people who have no financial literacy i say it's it's the best way to start it's a kind of an entry if you like into the financial world and it's relatively safe you can put it in a nicer bracket um and so if you're not investing over 25 ,000 a year, which I don't know anyone who's investing even remotely close to that.

16:29I think it's quite a good way to start. It's a good Warren Buffett advice, wasn't it? To get an S &P 500 tracker and hold on to that. I think there was that famous experiment where he said, I'm going to put a certain amount in a tracker fund and then one of the kind of top Wall Street brokers said, I'm going to invest it myself and we'll see who wins. And Buffett didn't touch it for 10 years and the trader did and eventually Buffett made more for considerably less investment of his time. Yeah, no, I like Buffett. He also invests in some of my favourite things like Dairy Queen and Krispy Kreme Donuts.

17:05So, you know, probably should take out a good insurance package with that. But, I mean, that's very clear. I can help you with that. I mean, Howard's very clear, like, there was no financial education. He got the information from his dad. but again not everyone has information not everyone has parents who have financial literacy no i was going to say that actually my my dad come from very very humble means first you know i'm a second generation british asian um my dad has got no clue and about investing i think as a family um they put money in their council council property that they bought in the 90s and um gold which is a very big thing in Asian culture that you put money in gold and that's it that's an investment that's handed down um but in terms of actually uh putting putting money into pensions ISAs you know my dad wouldn't have a clue um so I've come out of higher education I went to university um with with I've come out with an economics degree but the sort of financial education about how how to save money how to invest and things like that I couldn't have a conversation with my dad about it um at all so i think if you're in that position that almost widens the gap between gen z as well so that's another really interesting point there that whilst um we talk about the inequality between the older generation and gen z i think there's also going to be a really wide um difference between between gen z is because you're going to at some point in the future gen z are going to be inheriting a lot of money from parents and grandparents um and then you've got also other gen z clients that are just not in that position at all that have come that have got parents with with no assets to leave behind so there's there's that difference as well which i think is going to be harder in in with this climate where the standard of the cost of living is so high of course and that financial resilience then it needs to be built up for both because a young person who gets their money inherited they still need to be financially resilient because they need to know how to manage it how to become that curator and that you know not just a spender of that wealth but a curator and a a preserver of that wealth you know and maybe even to augment it and to find out ways that they can actually be responsible with it and if they haven't had the education then that becomes almost a worry and a danger in itself doesn't it yeah and I think that that is a one of the points that has been stopping a lot of older generation from passing wealth down as well is that they're just not sure that children and grandchildren are going to look after it in the same way um And, you know, the baby boomers really do feel like they've worked so hard for that money, for that wealth.

20:10And they do not want to see it being squandered away by their children and grandchildren within their lifetimes. So it's stopping a lot of people from passing wealth down tax sufficiently by gifting and things like that. And they're holding on to it. But then the danger is then the inheritance tax comes along, which has been nicknamed the voluntary tax, hasn't it? So then that's going to further erode generational wealth. Absolutely. Yeah. So what sort of practical things can advisors do within, you know, being regulatory compliant? What sort of practical things can they do to help Gen Zers become a bit more financially savvy or a bit more financially resilient?

20:55Do they all need to be on TikTok? Do they all need to be on TikTok apps? No, not necessarily. But I think it is about, you know, sitting down, having a conversation and not being afraid to speak to an advisor. I think that's the fear that a lot of clients have is that just asking for help or asking for guidance is going to cost them money. No, it isn't. If someone were to approach me and just ask me questions about what they might do, I can provide them guidance for no charge at all. It's when I need to actually do some work for a client, that's when charges come in. But if someone were to ask you about, well, why should I put money in a pension versus an ISA?

21:41I can have a conversation with them about it. So don't be afraid to reach out and get some guidance. It's available and any good advisor will do that for you. And having, you know, there are a lot of tools. I think TikTok, Instagram, there's lots of good information out there. So it is about doing your research and lots of young people do. They use a variety of sources. they sense check things so there are people doing some of the right things and I'd say that that's that's definitely a great course of action there and I think Harrow had mentioned about the you know the 30 previously putting 30 away into your spending 30 into your costs and things and 30 to save for the future yeah that maybe that percentage doesn't work as well anymore because of the cost of living but some sort of percentage-based saving and investing for the longer term is is key and i think as we said investing is a big big thing rather than just saving um saving will erode your the value of your um of your money over time whereas investing will help you get a real return over the rate of inflation in the longer term so maybe the government should do a little bit more to promote investing and savings knowledge in the UK maybe just we used to have those public safety um adverts all the time which herowood's thankfully too young to remember um and they were quite traumatizing you know don't cross a train line and you know the image of two football boots empty hanging up in the bedroom door because a little boy will never use them anymore very very grim um but maybe that sort of maybe we should have something a little public service um adverts about the virtue of investing just even just to try and get people understanding hey did you know what an isa is do you know that this is a government thing this is how much you can put away this is how much you can get back i i think that that'd be helpful maybe we should all be writing to our mps ahead of the budget to uh to encourage you to do that yeah i'd i'd certainly i'd certainly back that um i think yeah no you're right more needs to be done because especially when we talk about financial um sort of selling it's it's again because of the scandals and things that we've had in the past everything's very much labeled that you know you may lose money you could lose money you could lose money um but you could also lose money just by it sitting in a bank or sitting in a safe full of gold as long as gordon brown doesn't come along and sell it on you so that's uh that's okay oh i think all or we can all we can blame a lot of different governments and uh previous chancellors for some of the things i mean uh there was it was ash sarker on on question time the um was it last week before talking about how privatization has really failed us as a as a nation because we've sold so many of our um of of these as estate assets off at such low price and then it's the shareholders there that have massively won on on that front um so yeah there's a lot of public investment that has gone been undersold um and we can't do anything about it now we just have to look forward at how we can how we can make things a little bit easier for the Gen Z is.

25:22Yep, and the Gen Alphas, your son and my son. Yep, absolutely. Okay, well, I can see that the next guests want to come into the studio, so I'm going to have to result in sort of inter-FT advisor generational fairness and allow them to come in. But Malvi, thank you so much for joining us and for giving us your expert opinion. And thank you again, Herrowood, for giving us your report. I can't say it's been encouraging, but it's been very enlightening. so thank you very much for that agree thank you very much both of you thank you and until next time take care