Household Bills
Under 30s experience 0.9% inflation rate costing them thousands
As UK inflation rose unexpectedly in March to 0.5%, analysis from an insurer reveals those under the age of 30 have been hit harder owing to rising housing costs, meaning inflation for this group is closer to 0.9%.
Analysis from Aviva shows that the 0.5% headline figure masks different experiences for varying age-groups, so those under 30 have experienced faster price rises than other age groups.
For those aged under 30, the real CPI inflation rate is closer to 0.9% which means the group is losing thousands of pounds in spending power.
As an example, a 20-year-old earning £25,000 who experiences 0.9% inflation over the next 10 years would lose a total of £12,047 spending power. By 2026, this £25,000 salary would carry a buying power of £22,838.
For older workers on the same income but who experience a 0.5% inflation rate over the next 10 years, they would lose a total of £6,773 spending power over the same period so that by 2026 the £25,000 salary would carry a buying power of £23,777.
Comparing the two scenarios, over a decade, the 20-year-old would lose £5,274 more than other age groups.
Why has this happened?
Aviva said the different CPI experiences have been driven by differing shopping habits. Data from the Office for National Statistics show that under-30s spend proportionally less on food and more on housing than other age groups.
They have therefore not enjoyed the same benefits of falling food prices but have been impacted by faster rising housing costs.
Alistair McQueen, savings and retirement manager at Aviva, said: “Caution should be exercised when assuming that all sections of society are enjoying the same levels of low inflation. Our analysis indicates that those aged under 30 have been experiencing higher than average price rises for the past year, and indeed were already experiencing today’s headline figure of 0.5% back in November 2015.
McQueen adds the success of auto-enrolment into workplace pensions will be critical for younger savers as the system benefits from an employer contribution.
“Our research shows that up to 50% of those aged between 25 and 34 are now saving into a pension for the first time. This is encouraging, and the young should be praised for their positive action despite their other financial pressures. All must focus on the continued success of auto-enrolment and focus on understanding and supporting the needs of all savers, regardless of their age.”
