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Young people ‘bear burden of financial crisis’

A new ESRI publication says that young households were more likely to become unemployed and many purchased a home prior to the crash.

THE MAIN BURDEN of the financial crisis is being borne by young people, a new publication suggests.

Younger and Older Households in Crisis by Petra Gerlach-Kristen is published by the Economic and Social Research Institute.

The note looks at how the financial crisis has affected younger and older households in Ireland, using data from the Household Budget Survey for 2009 /10.

Unemployment

According to the author, the data show that unemployment, arrears and negative equity affect younger households more than older households.

It says that income and consumption increase roughly steadily for the average household over the age of 45 from 1994/95 to 2009/10.

However, there has been a large drop in income and consumption for the younger average household in the crisis. Between the 2004/05 survey and that of 2009/10, disposable income decreased by 8 per cent, consumption including housing by 20 per cent and excluding housing by 27 per cent.

This decline in the consumption by young households is large, both by international standards and in a historical comparison, said the publication.

Young households in Ireland dramatically reduced their consumption below income after the onset of the financial crisis, in contrast to older households, whose average expenditure did not decline. Younger and older households earned and spent about the same sums in 2009/10.

While some of this may represent a natural convergence given the rise in average education levels of the older half of the population, we argue that it is also due to young households facing credit constraints and building up savings in anticipation of these. In particular, credit constraints are likely to bind for households that are unemployed, in arrears or in negative equity.

It said that from a policy perspective, the analysis suggests that the main burden of the crisis is borne by the younger half of the Irish population.

This is because young households have been particularly likely to become unemployed in the crisis and many of them purchased a house/apartment prior to the crash, said the ESRI.

Though it said that unemployed young households are likely to find new jobs relatively quickly once the economy recovers, the note questions how policy can best address “the disproportionate impact the crisis has had on Ireland’s young households”.

Read: Consumers ‘weathering the storm’ as experts predict recession is bottoming out>

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