Life cycles and intergenerational transfers

Cicli di vita e rapporti tra generazioni 3248-img

One of the things that most annoy me when biking in the Apennines is coming across other cyclists who have seen a fair amount of winters more than I have, and who glide past while I am struggling up some steep hill. I console myself by thinking that the cyclists in question are undoubtedly very well-trained pensioners who have much more time than I do to devote to bicycling. These are the bona fide ‘long-service cyclists’ who began to draw their pensions at 57 years of age, if not before. Even outside of Italy the number of those in the ‘young-old’ category is rising: people aged between 60 and 70 in good health, who are not engaged in any activity. Interestingly, they are mostly to be found where the number of young NEETs (Not in Education, Employment, and Training) are also at record levels, which just goes to show that early retirement is not the answer to job creation for the young. On the contrary, a premature withdrawal from active life creates problems for the year and the old themselves, when they reach the age in which they are no longer able to earn a living wage.
The Great Recession and the debt crisis that followed have raised (not just in Italy), a major youth issue and a major older generation issue. The young are encountering serious problems entering the labour market and beginning their life cycle, the old are having problems completing the cycle, and are struggling with serious liquidity problem towards the end of their lives.
The crisis is destined to leave deep scars in the generations who found themselves, through no fault of their own, on the threshold of the labour market during the Great Recession and public debt crisis. Negative events often leave lasting traces in people’s behaviour, jeopardizing their careers, the length of time it takes them to form a family, delaying the moment they begin to save for their old age, and exposing them to future risks of unemployment. Many years down the road even their health can be affected. The risk is that of having entire generations of losers, also because the crisis will leave us with, amongst other things, a public debt mountain whose repayment will be a millstone round the neck of generations now entering the world of work.
Especially in those countries which experienced the bursting of property bubbles, a growing number of people over the age of ninety have discovered that even house prices can go down and have found themselves obliged to pay property taxes that are too high with respect to their income levels. These are the ‘house rich’ and ‘cash poor’, in other words people who own a house of a certain size but do not have the income to maintain it and to ensure a dignified standard of living. Many of them have invested all their savings in a house and never thought they would live so long. In good company with illustrious demographers, they had overlooked the incredible progress of medicine that has resulted in our gaining two-and-a-half years for every ten lived.
The crisis has modified the life cycle of entire generations. Typically it is the young who save, putting aside resources for their retirement, while it is old people who consume more than they earn. These behavioural patterns can be explained by people’s desire to not be exposed to strong fluctuations in their standards of living, consumption, and even their habits over their entire lifespan. Major crises hinder these decisions, especially when governments are unable to protect individuals from adverse events. So young people delay saving and old people can’t spend what they have accumulated because their capital is illiquid.