Co-authored by Alex Verkhivker. Previously, Alex worked as an economic researcher with the Federal Trade Commission in Washington, D.C. and as an Associate Economist at the Federal Reserve Bank of Chicago. He also holds degrees from the University of Chicago and UCLA.
The “millennial” generation is gaining increasing attention in today’s media outlets as they enter their peak spending years as agents in the U.S. economy. Indeed, there have been a wide variety of observations about the consumer preferences and human capital of the millennial generation. Among these, some often overlooked traits of the millennial generation include a heightened importance placed on savings and health relative to older generations.
Millennial students on the University of Pennsylvania campus (Photo Credit: University of... [+]
An increased weight on savings for millennials, despite high youth unemployment
One interesting observation from research at Financial Finesse (which is based on responses from workers who use its financial wellness programs at more than 600 major companies) is that millennials look favorably upon saving and engage in better management of day-to-day finances, despite being unable to save much in light of weakened economic prospects in the wake of the Great Recession. Interestingly, relative to other generations, millennials more frequently cite that personal debt reduction is a priority, while millennials also disproportionately face the brunt of financial burdens born from the Great Recession, including stagnant wages, rising student loan obligations and rising rent prices. Research on millennial spending patterns from Goldman Sachs shows a relatively increased desire to invest in their own healthy living as their share in year-over-year sales growth for athletic wear from 2008 to 2013 is on the rise.
Although Millennials are more likely to describe themselves as active investors than their Baby Boom predecessors, many are far from adopting “smart saver” behaviors like making saving for retirement a priority. Just two weeks ago, Blackrock came out with a “Global Investor Pulse Survey” where researchers have identified “smart savers” as the segment of investors that successfully plan for their retirement. Not only do smart savers make retirement a priority, this financially sophisticated group also tends to maintain a diversified portfolio with more holdings in equity rather than cash and they manage their finances frequently with the typical smart saver spending more than seven hours a month updating their investment accounts.
That same survey which interviewed over 27,000 respondents in 20 countries echoes the point that smart savers are committed to sound financial decision-making and often plan and seek financial advice through a professional advisor. By prioritizing health, leisure and travel over home and car purchases, today’s Millennials are far more focused on short-term goals perhaps due to their desire for instant gratification.
Nevertheless, the broader point reverberates the fact that although Millennials may want to have financial stability and believe they are doing enough to get there, the data say they just aren’t doing nearly enough.
Currently, the data say that the millennial generation has a savings rate of negative 2%. This pales in comparison to the positive rates of around 3% for those aged 35 to 44 and a 6% savings rate for those aged 45 to 54. Despite strong job creation, with total non–farm payroll employment increasing by 295,000 in the month of February and unemployment projected to fall as low as 5% over the next few months, the personal savings and finances of millennials remains precarious. The divergence in savings across millennials and baby boomers suggests that although the spending of millennials might be a positive for American spending and economic growth, this welfare comes only in the short term. The fact that millennials aren’t saving will hurt their ability to spend money in the future.
A renewed focus on health for millennials
Interestingly, contrary to the notions of “young invincibles” espoused by proponents of the Affordable Care Act, in a recent study Aetna found that millennials put a premium on their overall health relative of their Gen X and Baby Boom predecessors, where “healthy” does not just mean “not sick”. Part of this involves an increased millennial commitment to eating the right foods and exercising.
A reduced importance on home and auto ownership
New research on millennials from the Transamerica Center For Retirement Studies shows that home ownership (as well a car ownership) is less important for millennials relative to older generations. In short, the must-have major purchases for the Gen X and Baby Boom generations appear not to have the same clout with many of today’s millennials.
Lag in literacy and numeracy among U.S. millennials
The generation born between 1980 and 2010 has been cited as lagging in literacy and numeracy. Just last week, U.S. millennials were cited as among the world’s least skilled people, according to researchers at the Educational Testing Service (ETS). The Princeton-based researchers discovered a four-way tie between millennials (those born after 1980) the United States, the Slovak Republic, Poland and Ireland for last place in the category “problem-solving in technology-rich environments.”
Millennials Participating In The “Sharing Economy”
According to the Goldman Sachs research cited earlier, when marketing to millennials, brand managers should keep in mind the vast array of product information, reviews, and price comparisons available to this generation. Given the vast amount of data available on this group, it is difficult to sum them up in a few words. But what does seem to hold true is that Millennials are turning to goods and services without committing to own. This is being called the “sharing economy”. Not only do Millennials share information online through social media, but they are increasingly turning to sharing housing and ride services with one another.
Such collaborative consumption appears to be increasingly the norm amongst millennials and for them, sharing is a favorable service mechanism.
Given today’s interconnected global economy, it is important to remember that what is mine can also be yours, but only for the appropriate price.
This is increasingly the case with the millennial generation and their consumer habits.
