Article date: 18 April 2012
- Household income peaks by 35 and this age group want £12,000 more per year
Brits face an income gap of £411 per month between their current net income and what they feel would allow them to live comfortably, according to a new report from Aviva. The Times of our Lives report1 found that this additional desired income would be equivalent to an extra £7,236 per year (gross).
The Income Gap – Highest Earners Want the Most
Times of our Lives also found that those with the highest current household income think that they need the most additional income.2 The 25-34 age group have a monthly net income of £2,287, but feel they need an extra £627 per month net, equivalent to an annual gross increase in income of £12,003. This is followed by the 35-44s who want an average of £596 extra per month, or £10,762 per year.
This “squeezed middle age” group of 35-44s have a high level of debt and are the most likely to have a young family, increasing the financial pressures they face. In addition, when asked about their worries, this group were more concerned than most others about making ends meet and being able to pay for unexpected costs, with a third (34% and 33%) listing these as key troubles, potentially explaining the income gap.
In contrast, the over 65s feel they need the least additional income – just £23 per month – reflecting the findings of the report which indicate that wealth and contentedness increase as we get older.
Figure 1: Income Gap by Age Group
|Average monthly net household income||£1,891||£1,518||£2,287||£2,091||£1,995||£1,654||£1,679|
|Desired extra monthly net income||£411||£451||£627||£596||£490||£317||£23|
|Average Gross Annual Income||£29,896||£23,318||£36,890||£33,426||£31,732||£25,709||£26,157|
|Annual income gap (gross)||£7,236||£7,960||£12,003||£10,762||£8,642||£5,594||£380|
Older, Wiser, Wealthier
Indeed, net wealth increases with age and is highest among the over 65s (see Figure 2), at which point the average homeowner’s real ‘wealth’ is £308,317, and the average non-homeowner’s ‘wealth’ is £75,834.3
Property value is the largest element of accumulated total wealth, and the gap between homeowners and non-homeowners illustrates the importance of getting on the housing ladder - the research highlighted that people feel this should be achieved, ideally by the age of 25. Other important constituent parts of wealth include earnings, savings, cars, home contents and personal possessions, minus mortgage and other debts.
Figure 2: Net Wealth of Homeowners and Non Homeowners by Age Group 2011
Simon Warsop, Business Development Director at Aviva, said: “It is clear that the pressure on the household purse is as great as ever, and even those that have the highest income feel they need the greatest increase to feel comfortable - to the tune of around £600 a month.
“This income gap is understandable, as people in the middle age groups see average household income drop and often face the additional costs of raising children, while debt remains high. It’s no surprise then that the 35–44 age group feel the most financially squeezed, with making ends meet, dealing with unexpected costs like car repairs or boiler breakdowns, and job security among their top worries.
“But while the worries might peak in the middle ages, net household wealth grows steadily through life, rising to £308,317 for an average homeowner aged 65 plus. Unsurprisingly homes are the biggest source of wealth and the importance placed on possessions and protecting them also comes to the fore, with home insurance the least likely item they would give up after their car.”
Protecting our Wealth and Making Cutbacks
The value of home contents and possessions also rises as people get older, but peaks in the 55-64 age group at an average £37,893, before falling away after retirement. It is therefore not surprising that almost one in five people over 35 said that home insurance was one of the last things they would give up if they were forced to make cutbacks, along with their car.
Figure 3: Key assets by age group4
|Home contents and personal possessions||£29,001||£34,546||£37,079||£37,893||£34,321|
Spending on luxuries such as socialising (48%), satellite television subscriptions (21%) and holidays (31%) would be the first payments people would give up if they had to make cutbacks.
Simon Warsop added: “It’s important that people understand that all their assets, whether it’s their home, car, belongings or finances are properly protected throughout their lives so that if the unexpected happens, they’re covered.”
About the research:
1. Based on 2,024 UK adults interviewed by ICM between 10th and 13th February 2012.
2. The Times of our Lives report asked the respondents what their household income is currently (from all sources including salary, benefits etc) and how much extra income they feel they need to be financially secure and calculated what the equivalent annual gross increase in income would be.
Download the Times of our Lives Report PDF (3MB)
Download the Times of our Lives: Mind the Income Gap infographic PDF (500KB)
3. The Times of our Lives Report has calculated net wealth at different ages of life by working out the value of people’s total assets (net income, savings and investments, contents sum insured, car value, property value) minus their total liabilities (unsecured debt and mortgage outstanding). See the full report for all calculations and sources.
4. House value and savings amounts from the Aviva Family Finances Report and Real Retirement Report Q4 2011. Home contents and personal possessions from Aviva 2011 data. Car values from Glass’s Guide 2011/Aviva 2011 data.
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Notes to editors:
Aviva provides insurance, savings and investment products to 43 million customers worldwide.
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