MENLO PARK, CA–(Marketwired – August 31, 2015) – Atherton Lane Advisers, LLC® (“Atherton Lane”), a leading investment management firm, dedicated much of its recent quarterly newsletter to the underappreciated emergence and importance of the Millennial generation. Millennials, also referred to as “Generation Y,” are the children of the “Baby-Boomers”, and they now represent the largest proportion, nearly 29%, of the U.S. population. Millennials will comprise 1 in 3 adults by 2020, as well as the majority of the workforce by 2025. It is estimated that Millennials already account for more than $600 billion in annual U.S. consumer spending — and they haven’t hit their peak earning years. Projections suggest that this group will spend $1.4 trillion annually by 2020.
Coming Era Comparable to Baby Boomers and The Greatest Generation
To appreciate the impact the Millennial generation could have on the global and U.S. economies, Atherton Lane looks to the impact the Baby Boomers had entering the work force, marrying, and starting families. Boomers, those born between 1946 and 1964, mostly got married and formed households from 1970 through the early 1990s. The U.S. experienced strong growth during this period with a sharp increase in housing construction and increased incremental spending on consumer discretionary goods. A similar cycle took place after WWII when the Greatest Generation was starting families.
Although the global environment and economy have changed, Atherton Lane expects that the impact of this large population bulge will be similar to that of past generations. This suggests that the Millennials are about to drive a period of U.S. economic expansion, prosperity, and a commensurate bull market for stocks.
The Great Recession Slowed Millennials’ Financial Independence
Millennials are waiting longer to get married with the average age is now 27.1 for women and 29.1 for men. Only about one-quarter are now married compared to 36% of Gen Xers and 48% of Boomers at the same age. Even though marriage rates are low among the group, the Brookings Institute found that 70% say they want to get married. Atherton Lane sees the trend toward marrying later as due in part to economic factors, mainly the hangover from the Great Recession. Jobs have been relatively scarce. During the recession when the unemployment rate peaked at 10%, the rate was 18.6% for workers aged 18 to 24. According to the Bureau of Labor Statistics, this group represented 23% of the workforce, yet 38% of the unemployed in 2014. Workers over 55 were 22% of the workforce, but only 16% of the unemployed. A Pew Foundation study found economic conditions caused 31% of Millennials to postpone marriage or having children, and resulted in 25% of the generation moving back into their parents’ homes after living independently. A survey published by USA Today and Bank of America Better Money Habits indicated that 40% of Millennials are currently receiving financial help from their parents.
These employment challenges resulted in deferred Millennials’ household formation. The Atlanta Federal Reserve estimated that based on historical rates of household formation there is a shortfall of 1.9 million households in the under-34 age segment. As these individuals reach prime household formation years and as their careers progress, the pent up demand for housing, and the goods and services that accompany new households, will translate into purchases. Atherton Lane expects that with improving employment, higher wages, and low interest rates these demographics will drive housing and economic growth.
Highly Educated and Indebted
Millennials are highly educated with approximately 65% of Millennials having attended college, compared to 46% for Boomers. 47% of 25 to 34 year olds have a college degree, and 34% of the 25 to 29 age group have a least a bachelor’s degree. They spend more time in school and attend college well into their mid-20s and beyond. More Millennials attending college has translated into more student debt. Two-thirds of college students graduate with some debt, and the average student borrower from the class of 2013 had $26,600 in loans. According to the Consumer Financial Protection Bureau, student loan debt has reached a new milestone, crossing the $1.2 trillion mark — $1 trillion of that in federal student loan debt. On the bright side, those graduating, on average, earn $17,500 more per year than those with only high school diplomas according to the Pew Research Center.
Value Experiences over Goods and Are Financially Cautious
Atherton Lane sees a link between Millennials’ social media and constant interaction with their peers with the assignment of greater value to experiences versus material goods. Millennials tend to travel more, eat at restaurants, attend festivals, and place a higher emphasis on activities which involve their peers. Due to technological advancements and how they expect to receive the goods and services they value, the on-demand economy is particularly important to this generation. Services such as Uber/Lyft, Bloomthat, Rideshare/Zipcar, Airbnb, and Pandora/Spotify have capitalized on bringing traditional services to this age group. Another important characteristic of these new business models is a subscription or pay-as-you-go concept. Financial flexibility seems to be another motivating factor for Millennials.
Contrary to some perceptions, Millennials tend to be financially cautious. According to UBS research, the average investor aged 21 to 36 holds 52% of their savings in cash, compared to 23% for other age groups. A 2013 study by Accenture confirmed these attitudes, with 43% of Millennials identifying themselves as conservative investors, compared with 27% for Generation X and 31% for Boomers. This survey also found high levels of mistrust of financial institutions among Millennials and a greater reliance on the Internet, social media, and personal networks for financial advice. Mistrust in major financial institutions has opened a door for alternatives to traditional banking. The rise of payment systems such as PayPal, Square, Venmo, and crowd funding vehicles like Lending Club provide evidence that alternative financing platforms, not controlled by the large banks, might be preferred among younger generations.