Millennials could become robust spenders, after all
Don’t cry for the millennials, the 80 million Americans born, more or less, between 1980 and 2000. They’re getting a slow start as consumers, but it’s starting to look as if they’ll become irrepressible spenders, just like their parents.
A new Gallup poll shows millennials, in some ways, have become the most optimistic subset of U.S. consumers. In the poll, 51% of 18-to-34-year-olds say they’re spending more this year than last; this is the largest portion out of four different age groups. They’re shelling out more for necessities such as housing and utilities, but also for nice-to-have things including trendy new clothes and leisure activities. "Millennials' increased spending on discretionary items bucks the overall trend of increased spending on essential items at the expense of discretionary spending,” Gallup notes. Millennials are also “more freewheeling and impulsive” than older folks, which, after all, is what young consumers are supposed to be.
Millennials, you may recall, are the lost sheep of the U.S. economy. They came of age amid financial meltdowns, bank bailouts and futile hunts for dignified employment. Some watched their parents endure foreclosure or bankruptcy while dodging the calls of debt collectors. As they skulk in their parents’ basements, they see the orgy of self-interest in Washington and on Wall Street, and wonder how the United States has managed to survive for 200-plus years.
But millennials are beginning to stretch their legs and stick their heads out. Conventional wisdom holds that young adults aren’t interested in buying homes and cars like older Americans — or else, can’t afford them — but the latest trends show that first-time home and car purchases seem to be rising. Recent analysis by Trulia, for example, shows millennials are starting to buy homes at higher rates, with more growth likely in the future.
Good news beneath the data
The homeownership rate for millennials is still declining, but that may be a contrary indicator that shows good things are happening beneath the data. It’s well-known that a record-high portion of millennials live with their parents. When they move out and rent their own place, they go from being uncounted in the government survey that determines homeownership rates, to being counted as renters, which drives down the homeownership rate. But it’s actually good news when young people move out to live on their own. And sure enough, the rate of new-household formation has been rising this year after hitting a low point at the end of 2013. Some of those people newly living on their own will go from renters to homeowners within a few years, just as young adults did in the olden days of the 1980s and ‘90s.
Jed Kolko, chief economist at Trulia, says that, when you control for demographic changes such as people getting married and having kids at older ages, young adults’ propensity to own a home is roughly the same as it was for young adults 20 years ago. “There probably hasn’t been a huge shift in millennials’ attitudes toward homeownership,” he wrote recently.
Interest in buying a home is obviously linked to jobs and incomes, which are bouncing back for millennials. The unemployment rate for 18-to-34-year-olds has improved more quickly than the overall unemployment rate, which means young adults — usually more likely to be unemployed — are catching up with the rest of the workforce. That may help explain why car purchases by young people are picking up, too. Data from IHS Automotive shows car purchases by 18-to-34-year olds still aren’t back to prerecession levels, but they bottomed out in 2011 and have been rising since.
Millennials are often derided as a wayward cohort that came along at the wrong time and will never enjoy living standards comparable to prior generations. They went to college after several years of sharp increases in education costs and ended up with record levels of student debt as a result. Then they graduated into the worst job market in 70 years. Plus, they’ll end up saddled with a $17 trillion national debt their parents and grandparents racked up. This, in theory, explains why millennials are untrusting and pessimistic about the future, as research by Pew and other organizations has consistently shown.
There’s another way to look at it, though: Perhaps the searing experience of growing up in a punishing bubble economy will make millennialls better prepared for life as working adults. The baby boomers and Generation Xers, after all, are the ones who binged on debt to finance lifestyles they couldn’t really afford and are now dramatically unprepared for retirement. Many millennials, by contrast, are starting out with no choice but to spend within their means, with lessons everywhere about the need to save and prepare for the unexpected.
Kolko of Trulia argues that the most damaged consumers aren’t millennials but middle-aged Americans who bought homes as the housing bubble was forming in the early 2000s, and either foreclosed or ended up suffering a major loss of home equity. That’s the kind of setback that typically takes years to overcome. Millennials, meanwhile, have an opportunity to learn from those financial wipeouts without directly experiencing them — which could end up making them the shrewdest generation in decades.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
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