Facing a future of poverty

The world's richest get poorer, and younger people live only for today, says William Kay. But if 18-34s don't save, an ugly retirements awaits

In a week when the the market plunged to eight-year lows, two surveys suggest the world's richest people are growing poorer while Britain's under-35s face an impoverished middle and old age.

In a week when the the market plunged to eight-year lows, two surveys suggest the world's richest people are growing poorer while Britain's under-35s face an impoverished middle and old age.

A report by the wealth management consultancy Scorpio Partnership shows the invested savings of the world's richest people dropped an average of 8 per cent last year, based on the 2002 results of 26 of the leading private banks, including Goldman Sachs, UBS, Merrill Lynch and HSBC Republic. The decline was largely due to falling stock markets, but private bank customers were also forced to make withdrawals as global economic conditions deteriorated last year.

And Marks & Spencer Financial Services has identified a DIY generation of 18- to 34-year-olds with more debt, less savings and less prospect of inherited wealth. M&S's Alan Rensch says: "This group has yet to wake up and realise they are in denial. The 'have it all/have it now' attitude is prevalent, they still expect to retire early and they rely on inheritances they may never get."

These hopes looked even more remote this week. Alex Scott, senior research analyst at Seven Investment Management, said: "We are taking a cautious line, recommending that our clients be well diversified. We are still clearly in a bear market. The global economy will still be unbalanced, even after the Iraq crisis."

Philippa Gee, investment strategist at the IFA Torquil Clark, said: "It seems highly unlikely a resolution of the Iraq situation will be achieved in the next few weeks, and that means stock markets could continue to crumble, particularly if the question mark over a potential war is combined with bad news from UK companies."

John Kelly, head of client investment at Inscape, Abbey National's wealth manager, said: "The technical position of the market is not strong at present. Many professional investors have taken out put options to protect themselves on the downside, which means they expect further falls. That, in turn, hollows out the ground below present prices. But I would advise investors not to panic, and we are telling our clients to phase money into the market over time."

Robert Talbut, chief investment officer of Isis investment management, said: "The fall this week had the 'smell' of irrational pessimism, because some people tried to provide reasons for falls when nothing had changed. Many equity markets around the world now provide unconditional value."

That means little to Emily Hill, 24, who is earning £17,500 a year working in the men's buying department of House of Fraser in London. She has £3,000 in student debt and is paying £100 a week to rent a room in Clapham, south London.

"Neither I nor any of my friends have a pension," she said. "We wouldn't think of it. My boyfriend is a lawyer in the City, so he is well paid, but he isn't saving either. We live in a materialistic society: I'd rather buy a handbag or a pair of shoes. And we're off skiing next week."

Ms Hill's job comes with a potential bonus, and she might save some of that, but after the stock market's falls she would avoid stocks and shares.

The survey found nine in 10 of those aged 18 to 34 know they need to save but 45 per cent of under-35s have no interest in it; more than four-fifths of that age group want to retire early, although Government data shows people are working later; nearly a third expect to inherit more than £5,000, but only 22 per cent of those over 65 have had an inheritance of more than £5,000.

Mr Rensch added: "This 'DIY Generation' face a squeeze on their ability to save in the 'pre- and post-children' lifestages and will also see a decrease in money passed from one generation to another. The optimal ages for saving at present are in the twenties before having a family and during the late forties and fifties after children have grown up.

"Savings built up before children have traditionally been used during the family lifestage for house-purchase and child-rearing, and savings built when children have grown up fund the retirement."

The early period for saving is affected by student loans, higher house prices and the "have it all/have it now" mentality, leaving less disposable income for saving. The later period for saving is being squeezed by paying off mortgages later, having children later, paying for education, and an increase in the break-up of long-term relationships.

Were the DIY Generation to be more financially aware, they would be less likely to be living in such a state of denial and more likely to make realistic plans. But when Anna Bradley, the FSA's new consumer director, this week paraded her strategic vision of a public more enlightened about money, she admitted she at first did not understand how big a task she was taking on. She said: "People need to understand the nature of the risks they are taking on. They do not always understand the stock market involves a high degree of risk and think savings always means safe. We want to find out how people make financial decisions, by relating that to their overall objectives, such as buying a house or ensuring health provision."

But advisers say investors must take a long-term view. Brian Winterflood, the veteran stock market operator, said he expects the bear market to continue for two more years.

Ms Gee said: "These are difficult times for investors and it would be madness to say they are completely over, but a resolution will eventually occur, companies will have completed their restructuring, and equity holders will start to see some cautious signs of growth. It will just take time.

"I am certainly suggesting most investors phase their Isa into the market over the next six months, because that is a more realistic time period and yet still allows them to maximise their allowance for this year."

John Hatherley of M&G said: "People are terribly fearful. Equity yields now exceed gilt yields for the first time since 1959, but many investors fear there is something they don't know about."

For those who want some ideas about the best ways to steer their money through today's dangerous waters, the West Country IFA Chartwell Investment has produced an Investors Survival Guide. It is obtainable by phoning 01225 446556, or go to www.chartwell-direct.co.uk.