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Generations of families saving and investing together

The wealth gap between generations is growing at an alarming rate. Young British adults, ‘Generation Y’ – in the face of low salaries, student debt and extortionate house prices – are becoming ever more reliant on the bank of mum and dad. It’s a trend that I believe will only continue, with more and more families pulling together, living as one, and combining their earnings and investments to map out their financial security as one.

The youth of today

Many young adults in the UK are now leaving university with debts of £30,000 or more and they’re struggling to find well-paid professional jobs to claw their way back into the black.

In the ten years from 2001 to 2011, the number of homes in England and Wales owned by people aged under 35 fell from 2.2m to 1.4m, according to research carried out by property agent Savills for the Financial Times. Over the same period, the number of under-35 households in private rented housing rose from 1.1m to 1.9m. The prospect of saving enough for a deposit on a house is a far-flung dream for this age group, unless they can reply on significant financial support from their parents.

Enhancing our power to save

The government certainly seems very aware of this growing problem. There have been a number of big changes this year to pensions and tax on savings that are designed to help increase our ability to save, invest and grow our wealth – not just for our own future, but that of our offspring too.

The launch of the New ISA earlier this year was a bold step, increasing the annual tax allowance on savings accounts to £15,000 and making it easier for people to switch between cash ISAs and stocks and shares ISAs.

But that was just the start. The new pension rules that take effect from April 2015 are going to have a far greater impact. They will enable those over the age of 55 to take much more control of their money and how they plan their income and investment growth in later life.

Death to the death tax

The scrapping of the 55% inheritance tax on pensions was also a substantial move. It’s fantastic that this death tax will finally be abolished. In the UK, we’re already taxed every which way, and to be landed with a 55% bill on an inherited pension pot is quite chilling.

Mr Cameron also made eloquent overtures back in March that increasing the inheritance tax threshold to £1m was firmly on his radar, but things have gone noticeably quiet on that front ever since.

As he said at the time: “I believe in people being able to pass things down through the generations and on to our children, it builds a stronger society. Inheritance tax should only really be paid by the rich, it shouldn’t be paid by those people who have worked hard and saved and brought a family house.”

It would clearly hold big sway with the grey vote ahead of the next general election but perhaps the government believes it has incurred – or pledged – too many other reforms to pensions and taxes this year to make this viable.

A rebirth of old-fashioned values

I would still very much like to see the inheritance tax threshold increased. It will further encourage generations of families to unite and responsibly plan together. And this, strangely enough, could be one of the wonderfully surprising things that emerges from the daunting inter-generational wealth gap that we’re now experiencing: we may see a return to a more family-focused society in the western world.

The concept of the family home is becoming more important, with an increasing number of 20 and 30-somethings living with their parents for much longer than they’d previously anticipated. As two, three or more generations of a family find they need to rely on one another to collectively enjoy a good, comfortable standard of living and achieve the things they want in life, the bonds between those family members need to strengthen. And we could see that extend to communities too, with young working parents staying closer to home as they rely on the family for help with babysitting duties.

Investing today for a better tomorrow

We live in a society that is very much about immediacy and efficiency, whether it’s in our retail habits, the media we consume or the way we communicate. But this is totally at odds with how we should consider investing. There is no quick fix to making money through investing. It’s a long-term game.

At Nutmeg, we recommend a minimum lifecycle of three years for an investment portfolio. Even then, that’s a comparatively short amount of time, and you probably wouldn’t want to adopt too much of a ‘high risk, high reward’ approach over three years as it doesn’t give you the opportunity to recover any losses you might make in that time. Ten years, or even more, and you are more likely to successfully adopt that ‘high risk, high reward’ strategy.

Thinking about your objectives is also important. High risk may not be right for you and your personal set of circumstances, your financial profile. Even over a long period, you may want to stick to a low risk investment approach. Or perhaps you are best off having different types of investments, different portfolios, for different goals in life. Putting money aside for a few years towards a child’s university fees might be a low risk game plan for you, with much of that portfolio invested in bonds; whereas a 30-year pension pot could enable you to take more risk and so you may end up with the majority of your portfolio in equities.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past or future performance indicators are not a reliable indicator of future performance. ISA rules apply. Pension rules apply. Tax treatment depends on your individual circumstances and may be subject to change in the future.


1. 73% of today’s students will still be paying off their tuition fees in their 50s –, 9th April 2014

2. Young people lose out as UK’s housing wealth gap widens – Financial Times, 14th February 2014