Young and Poor in America: Part II

Millennials may be poorer than they appear

Late last year I wrote a post based on two recent reports using government data to document the seriousness of the financial squeeze on Millennials (Young and Poor in America).    The bottom line? There isn’t much of a bottom line for today’s young adults.

Factors impacting their pockets are  fewer jobs, lower earnings, poorer job quality in terms of benefits, higher debt, and higher costs for education, rent and health care.  The data is a clear warning to marketers counting on discretionary dollars from young adults to jumpstart their industries out of recession. It’s not gonna happen.

It found 20-somethings in 2005 were worse off than those of 1975 in every area except education, and even the trends for educational access are alarming.

Typical earnings (in constant dollars) for young men have declined over the course of a generation, falling 19 percent between 1975 and 2005 and falling 34% for young men without a college degree. Typical earnings for young women increased a mere 4 percent over the same period. Much of the decline came recently, between 2001 and 2005, despite increases in educational attainment.

Just How Bad Is It?

Source: Ad Age: Spending by 25-34 year olds indexed to Boomers at the same age.

This week, two more analyses of Millennial spending shed further light on the situation, sadly with much the same conclusion. One is from Ad Age and the other from Bloomberg Businessweek.

The  Advertising Age analysis is based on Bureau of Labor statistics spending data  comparing three generations at the same point in their lives – age 25-34. Indexing Boomers at 100, the study shows significantly lower spending by Millennials in constant dollars for a range of categories, including food at home, apparel, home furnishings, and transportation. Dining out and entertainment were not as strongly affected but were down somewhat nevertheless. While not shown in this analysis, based on the earlier studies it is likely that spending on discretionary items such as travel, automotive and financial services would also be impacted. It is interesting to note that these declines are not due to lower TOTAL spending, which is actually up vs. 25-34 year old Boomers by $3 in constant dollars.

Millennials Adjusting to the New Reality

The actual data matches Millennials self-perceptions regarding their spending. In a recent study, we asked Millennial women if they were to have an extra $1000, how they would spend it? The majority claim they would allocate it to debt reduction, savings and education. This is not an group given to self-indulgent splurges.

A new report by Bloomberg Business Week confirms the “penny pinching” realities of Millennial life:

  •  Nearly a quarter of Millennials say they don’t have enough money to buy basic necessities
  • Less than half say they consistently pay their bills on time
  • Nearly 40% of Millennials are estimated to be without health insurance
  • About a quarter have moved back with their parents at least once to save money
  • Nearly half (45%) say they have consciously reduced their driving (vs. 24% of older drivers)

Marketing Outlook Growing Brighter

The silver lining is that while “rising” of Millennials and their disposable dollars has been delayed, it’s not likely to be foregone entirely.  Recessions always end eventually and people grow older. As the economy improves and Millennial incomes improve, the brands that have gone the extra mile to connect with Millennial values and aspirations during bad times are likely to thrive all the more so during the good ones.

Meanwhile, those looking to connect with Millennials in the near-term should take care to position their products and services as necessities, not frills. Show the utility of the brand in helping Millennials be more efficient with their time, smarter with their money, or kinder to the environment.

Another hint: Millennials may be more likely to open their pockets for gifts for a special someone or an experience than for goods for themselves. For the most part, Millennials are less interested in accumulating things, but they still crave unique entertainment and access to life enhancing experiences.  The one exception may be apparel.  According to the Bloomberg Business Week data, Millennials as 25-34 spend 8% more on apparel than those 35-44 even though they earn 22% less. It’s one thing to be poor, but apparently it’s just not cool to look like you’re struggling.