Tomorrow's world: what's the financial future for a baby born today?

The Momentum UK Team 25 March 2014

One in three children born in 2012 will live to be 100, according to current estimates. The expectation of rising average life expectancy, combined with the rising cost of living, education and housing, means that a child born today may see some significant changes and could need to start planning much earlier for their financial future.

Ten years ago, technologically minded economists indicated that driving cars in traffic was the benchmark human activity that computers were unlikely to accomplish. Now Google’s driverless cars are rolling around California, and no one doubts that more incredible innovation is on the way, providing that we all still have a thirst for it. Whilst it’s impossible to predict the financial future for the next generation with any degree of certainty, here are a few things that may be completely different for the adults of tomorrow:

£73,000 student debts

High tuition fees and changes to the ways that student loans are provided could mean that children born today who complete higher education could be paying off student debts of £73,000 until they are 52 years old, according to estimates by Development Economics and Scottish Widows.

Financial future?More one-child families

The number of parents with just one child increased by 5% over the 16 years from 1996 to 2012, while the number of families with three children or more dropped by 3% according to the Office for National Statistics. In the UK over the last decade two out of every three babies were born to fathers over the age of 30. In 2012 49% of live births were to mothers aged 30 or over.

With the cost of raising a child in it’s first year up by 50% in the last 11 years since 2003, and the overall cost of raising a child reached £222,458 last year according to insurance firm LV=, both are trends that look set to strengthen and continue.

The need for a £2.4m pension pot

A survey of parents with children under five found that 78% are concerned that their children may need to work well into their 70s. Life expectancy is rising steadily year on year - currently 79.1 years for a man, and 82.9 years for a woman. In order to achieve an acceptable standard of living in retirement, Scottish Widows estimates that a pension pot of £2.4million is needed, meaning that pension contributions could need to start sooner for today’s child. To investigate how this could affect pension contributions, try our pension tools on Money Hub or our pension calculator. Being financially astute and finding the best pensions and investments could become key in ensuring a prosperous retirement in the future.

Longer life, long mortgage

People working longer and an increasing life expectancy may mean that financial products will change to allow mortgages to be paid over a longer period of time, especially given the huge 4,286% rise in house prices (far higher than inflation) over the last 40 years. Today’s children are likely to be paying off a bigger mortgage four years later than their parents, and seven years later than their grandparents, until they are at least 61, according to a recent estimate. To forecast the impact of a bigger mortgage and longer mortgage period, try the property and assets tab on Money Hub.

Your face, your banknote

Cheques are being fazed out, and even cash is on the wane with a recent report suggesting that almost three out of four consumers worry about making cash payments. There’s some argument that cloud-based technology will render all purchasing as automatic as waving your hand. Paypal have even developed technology to use your face via a smartphone or tablet as payment, launched last year. It is looking like banknotes and coins could eventually be things of the past.

With the rapid increase in house prices over the last 20 years, housing could become more affordable, with shared ownership and multi-function apartment blocks becoming the norm. The Economist estimates that the jobs market will not change much in the next decade either, suggesting that a pattern of innovation and technological change will still mean that the UK is largely services-based.

Looking back to plan forward

45% of parents surveyed by Scottish Widows were concerned that their children will not be able to save enough money for a comfortable retirement. Yet almost 40% of parents said they were not considering their child’s future in their financial planning, and 50% would not consider starting a pension for their child on their first birthday. To start planning at your family’s future, take a look at our Money Hub tool where you can set savings goals or track a child pension for your children, and balance this against your everyday spending. Or you can compare savings accounts on our savings pages to get the best deal for you.

The future isn’t altogether bleak for a child born today: 41% of parents are excited about the prospect of long-lasting family relationships, and a further 37% are happy that their children will accomplish more in life because they will be healthier longer.