Millenial Spending Habits

Millennials do not have the greatest reputation when it comes to money management. With heavy student loans and credit card debts, they are stereotyped as lazy and unambitious. According to CNBC, the home ownership rate for millennials is 8% lower than it was for Gen X and Baby Boomers when they were in the same age group. So what are millennials spending their money on? And is this a reflection of an entire generation handling money poorly? 

The Use of Social Media

The influx of millennials posting images of their artisan coffee purchases at trendy cafes may lead other generations to conclude that millennials’ poor financial records are due to non-essential spending. However, millennials might be expanding the definition of ‘non-essential’. Spending money on experiences allows millennials to connect with others on social media. It allows them to form relationships and bond. Millennials see these traditionally ‘non-essential’ experiences as essential, as evidenced by the instagram-induced FOMO (fear of missing out)  epidemic.

A big reason that makes millennials overspend is social media envy. When millennials look at their social media and see images and experiences shared by their friends, they face social pressures to emulate their friends. The pressure to spend stems from the desire to not miss out on novel experiences or fun with friends.

Millennials see shared experiences as a key to bonding. They believe attending events makes them feel more connected to people and helps deepen relationships with friends. According to CNBC, more than 2 in 5 millennials are afraid of missing out on novel experiences and would rather pay for experiences over tangible products. Entrepreneurs have been cashing in on millennials’ love for experiences by inventing events and venues where people can take Instagram shots in hopes of making their friends jealous. 2 in 5 millennial admit to spending money on something at least once a year with the purpose of posting on social media.

Most of the spending that makes millennials overshoot their budget does not come from paid experiences or even big purchases on cars and houses, but it comes from splurges on food (47%) and clothes (41%). Millennials tend to pay attention to how their friends spend their money while looking at social media. This can have a bad influence on their spending because they can be pressurized to spend more money than they can afford on modish restaurant meals.

The Idea of a Healthy Lifestyle

The perception of people on millennials is usually associated with social media. It is because millennials are very active on social media and use their phones more frequently than previous generations. However, in millennials' eyes, they actually view health as a daily commitment to eating right and exercising. 

Due to COVID-19 Pandemic, it is found that more people are conscious about their health and would spend money in keeping fit, like doing yoga, eating superfood and buying medical insurance. Actually, this trend is also common within the millennial community. According to Goldman Sachs, millennials are exercising more, eating smarter and smoking less than previous generations. Millennials do not only use their phone for the purpose of social media. Instead, they also use digital tools, eg. fitness apps on their phone to track training data and online information to find restaurants providing healthy food. To our surprise, this is the area where millennials are willing to spend money on compelling brands, but not luxurious handbag and cosmetics brands. 

Despite the fact that you may see your friends going drinking and smoking, they do not constitute a big part. Statistics show that 83% of them disapprove of people smoking one or more packs of cigarettes per day and they are turning away from unhealthy habits like smoking and drinking.

This generation of millennials would heavily affect the global economy as they attain their prime working and spending years. For instance, their active lifestyle will affect a wide range of industries, ranging from food and drink to fashion.

Lower Disposable Income

Millennials may be the most misunderstood generation in, perhaps, generations. Born between the early 1980s and the early 2000s, they are the first generation to have had very little choice but to accept the many harsh realities of our world. For example, with climate change, they are the ones that will have to live with its impact more than previous generations, whether or not they believe that climate change is real. 

With less to spend, they have no choice but to put off commitments like marriage and home ownerships. Despite the growing number who are choosing to live at home with their parents, an overwhelming majority of 93% does want to own a home in the future, as found in Trulia’s American Dream survey. It’s true that they have been putting off significant milestones like marriage and children, all the way from 23 years old in the 1970s to 30 years old in the current decade, according to Goldman Sachs Global Investment Research; but that doesn’t mean they want to stay single forever. In fact, more than 70% do desire to have their own children, with reference to the Pew Research Center!

With limited disposable income, they have their own clear hierarchy of needs. The must-haves for previous generations aren’t as important for Millennials. They’re putting off major purchases if not avoiding them entirely. Houses, for instance, are considered “extremely important” in the eyes of millennials, whereas cars and luxury bags only account for 15% and 10% respectively, as evidenced by the Goldman Sachs Fortnightly Thoughts intern survey.

Renting & the Sharing Economy

Similar to the pragmatism displayed in their delayed purchases of homes and reluctance to purchase luxury goods, millennials are also more likely to rent, displaying a deviance from the consumerist culture by previous generations. Aside from decreased disposable income relative to previous generations, this may also be partially attributed to the rise of social media, which has allowed for an emphasis to be placed on community, rather than sole ownership. While previous generations may look at scrapbooks to reminiscence, millennials head to Facebook to scroll through old photos and messages - often already shared with friends or even the general public. 

By renting, millennials are able to gain access to goods and services on demand without as high a price tag. A survey conducted by the Organisation for Economic Cooperation and Development showed that 60% of individuals aged 25-34 in the US rented their homes.

With millennials being the most populous group in the global population, their wallets have a lot of voting power. It is with the rise of millennials that numerous peer-to-peer platforms offering various goods and services, such as lodging and ride-sharing, have sprung up and are expected to persist. PwC estimates that by 2050, the global sharing economy will grow to be worth approximately $335 billion USD, up from $15 billion in 2014. Having more businesses offering goods and services within the sharing economy network will translate into more opportunities to experience the novel and for people to live the life they want. 

What is the greatest take-away from this article? Don’t subscribe to all stereotypes you hear about millennials. They’re prioritising living life: treating their bodies well and forming relationships, and are doing the best they can with what they have.