The Federal Reserve: Millennials spend less because they have less

The Federal Reserve: Millennials spend less because they have less

Millennials and their spending habits have been targeted as one of the reasons behind reduced demand from homes, cars and retail sales. New research, however, from the Federal Reserve points to the reason behind those spending habits as the simple fact that they spend less because they have less money to spend. In many respects that comes as no surprise given the magnitude of debt levels between the levels of student loan and credit card debt they are juggling, but that has also impacted their level of savings with more Millennials having nothing saved.

While it may come as a surprise to some, the above revelation that a growing percentage of Millennials are living lives that are in tune with our Middle-class Squeeze investing theme.

 

In recent years, slow home construction, declining new-car sales and the poor performance of brick-and-mortar retailers have all been blamed on the “unique tastes and preferences” of those born between 1981 and 1997. That means millennials have been accused of killing everything from canned tuna to the suburbs.

Actually, though, millennial habits are not so different from that of previous generations, “once the effects of age, income, and a wide range of demographic characteristics are taken into account,” according to a new paper by the Federal Reserve.

Younger people are spending less because they have less money to spend, the Fed concludes.

“Millennials are less well off than members of earlier generations when they were young, with lower earnings, fewer assets, and less wealth,” write authors Christopher Kurz, Geng Li and Daniel J. Vine.”

For family income,” they write, controlling for age and work status, “Generation X and baby boomer households have a family income that is 11 percent and 14 percent higher, respectively, than that of demographically comparable millennial households.”

That jibes with recent research showing that the median millennial only has $2,430 in savings and that a growing percentage of millennials have absolutely nothing saved. In fact, that generation is still largely relying on Mom and Dad for help: Most American adults between the ages 21 to 37 receive financial assistance from their parents or guardians, according to a report from Country Financial.

Source: Federal Reserve study: Millennials spend less because they’re poorer

About the Author

Chris Versace, Chief Investment Officer
I'm the Chief Investment Officer of Tematica Research and editor of Tematica Investing newsletter. All of that capitalizes on my near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks. In that time, I've been ranked an All Star Analyst by Zacks Investment Research and my efforts in analyzing industries, companies and equities have been recognized by both Institutional Investor and Thomson Reuters’ StarMine Monitor. In my travels, I've covered cyclicals, tech and more, which gives me a different vantage point, one that uses not only an ecosystem or food chain perspective, but one that also examines demographics, economics, psychographics and more when formulating my investment views. The question I most often get is "Are you related to…."

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