Depending on when you were born, we all get allocated to a different generation. Those born between 1946 and 1964 are referred to as Baby Boomers, those born between 1965 and 1980 are Generation X and those between 1981 and 1996 have been labelled millennials, or Generation Y.
Whilst age may be the main factor splitting us into these groups, there has been widespread debate about millennials, in particular, breaking the behavioural mould when it comes to lifestyle and financial choices.
However, new research is challenging the perception that millennials are genuinely different from previous generations, demonstrating that the income, savings and consumption patterns of millennials, when adjusted for demographic and socio-economic factors, do not appear to be that different at all.
There are broadly three reasons why one generation might display different behaviours to their predecessors. These are demographics, long-run trends and the ‘cohort effect’ (common characteristics driven by shared temporal or life experience). Millennials are famed for living month to month, staying at home longer with their parents, getting married later in life and renting rather than saving for a deposit. However, the research has uncovered that many of these behavioural characteristics are most likely driven out of necessity rather than choice.
Millennials came of age during the financial crisis and were the first to experience the burden of heavy student debt, both of which are perceived to have influenced the way they spend their money – they are said to be more cautious with their spending and poorer than their elders were at the same age; what remains to be seen is whether this is a permanent effect of the recession or whether traits will adjust as the economy recovers, as there is some evidence that economic conditions experienced during formative years can have long-lived or permanent effects, particularly on investment decisions.
With a reduction in home and car ownership cited as two of the key differences between Generation Y and their predecessors, data suggests that many millennials are moving towards a ‘sharing economy’ because they have to, not because they choose to. Since the financial crisis, lending criteria is stricter than ever before; employment rates and earnings are lower and student loan debt is bearing down on millennials shoulders for a considerable portion of their early working life. Also, by living at home for longer, car ownership rates are also lower. However, data suggests that most millennials do in fact aspire to owning their own home and becoming financially independent and those now in their early thirties, have largely met with the vehicle spending patterns of Generation X.
The graph below demonstrates that millennials spend their money like prior generations once things like age have been adjusted.
Source: Kurz, C., Li, G. and Daniel Vine, 2018. ‘Are Millennials Different?’, Finance and Economics Discussion Series 2018–080, Empirical Research Partners Analysis. Adjustments made for age, economy and demographics.
Generational change is spanned by longer-term secular trends; just because millennials are quicker to adopt new technologies, have embraced flexible working and prefer to do their shopping online, it does not stop these traits filtering into wider society. So, whilst millennials may appear to have a lower appetite for risk, spend their money in different ways and start saving for their retirement later, their end goals in life and what they spend their money on are not actually that different from the rest of us.
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