Wealth Accumulation Patterns Among the Younger Generation in Britain
48 Pages Posted: 19 May 2020 Last revised: 1 May 2021
Date Written: July 17, 2019
The baby boomer generation in Britain has accumulated substantial wealth through housing and private pension wealth during the 1990s and 2000s. However, the circumstances for the younger generation in Britain are expected to differ due to considerably less favourable and highly uncertain economic and political environment in the late 2000s and 2010s. Moreover, several studies have pointed to an increasing economic inequality within the younger generation, as their socio-economic outcomes are closely linked to their parents' wealth and social capital. Motivated by this observation, this study questions how Britain's younger adults aged between 25 and 45 accumulate wealth, and whether social origin plays a role in the manner and extent of younger adults' wealth-building. To answer these questions, the study develops a typology of savers and examines whether the initial saver type membership as well as patterns of transitions across the saver types over time differ by parental homeownership.
To establish saver types, it takes a Balance Sheet approach, which distinguishes asset- and debt-holding, and different types of wealth-building vehicles by factors such as risk structure, accessibility and ease of liquidation as well as amounts held in each vehicle, in order to provide nuanced picture of wealth accumulation. Individual balance sheet is built using Wealth and Assets Survey, which is a biennial study on economic circumstances of British households since 2006/8. Factor Mixture Modelling is used to establish saver types, which takes both ownership and amounts held in a certain type of wealth building vehicle into account. Transitions probabilities between 2008/10 and 2014/16 are examined using Latent Transition Analysis. The characteristics associated with a specific saver type at the initial stage and transitions probabilities over time are examined using Latent Transition Analysis in the multi-group analysis framework comparing two groups distinguished by parental homeownership.
Four distinctive saver types are established: undersavers, property saver-dissavers, traditional savers and investor savers in the order of least wealthy to most wealthy group. The dominant wealth portfolio within these saver types shows that their abilities to deal with adverse effect differ substantially. The chances of being allocated to wealthier saver types are closely linked to individuals' socio-economic characteristics as well as parental homeownership. Although transition probabilities are relatively stable given a short observation period, upwards movement is more frequent among those who grew up with home-owning parents, controlling for other variables. This study's findings show how the younger generation's abilities to build wealth may differ at the earlier stage of life. Also, the findings of this study concur with the previous studies that the younger generation's economic outcomes are increasingly connected to their parents', which has substantial policy implications for inequality.
Keywords: Wealth accumulation, factor mixture modelling, latent class analysis
Suggested Citation: Suggested Citation