Arrested development

Millennials are thought of as self-absorbed tech-addicts. But their approach to spending and saving is set to reshape companies, markets and economies.

Millennials are often seen as selfish and entitled. According to news reports, their capricious spending habits have wreaked havoc on consumer industries.

Are millennials really self-absorbed tech-addicts?

Criticism of youngsters is hardly new. “People try to put us down,” as Roger Daltrey complained on The Who’s hit “My Generation” in 1965.

But at least Daltrey’s generation – the baby boomers – had a fast-growing economy in which to find their feet.

Not so the millennials who entered the jobs market in the shadow of the financial crisis. They are grappling with student debt, rising house prices and stagnant incomes.

“In real terms, the wages of someone in their 20s now are less than the wages of someone in their 20s 10 or 15 years ago,” says former UK cabinet minister and life peer David Willetts, who chairs the Intergenerational Commission at the Resolution Foundation.

Willetts argues millennials are in fact “a serious-minded group. They think if they don’t work hard they are facing a very tough and competitive world out there. In many ways they are.”

But there is hope for millennials. More resilient than their reputation suggests, they are slowly beginning to overcome their circumstances to influence companies, markets and societies.

This has big implications for investors in a range of industries.

Millennial myths

So what is a millennial? The term usually refers to a cohort born between 1981 and 2000. The oldest are now in their late 30s.

As the most populous generation in the US and in some European countries, millennials are prime targets for advertisers. But despite a wealth of research on the subject, millennials remain shrouded in myths and half-truths.

There is some truth in the smartphone-wielding stereotype. Millennials spend 1457 minutes per week on their phones. That’s more than double the figure for their predecessors in Generation X.1

But arguably the defining moment for the millennial generation was not the invention of Apple’s iPhone in 2007, but another seismic event that began in the same year: the global financial crisis.

Shadow of the crisis

Everyone felt the impact of the crash. But millennials were hit especially hard because they were poised to enter the labour market just as the recession took hold.

Stewart Robertson, senior economist for the UK and Europe at Aviva Investors, says millennials missed out on the fast salary progression their parents enjoyed. “They experienced quite fierce austerity. The squeeze from 2009 to 2014 was probably the worst in the post-war period.”

Post-crisis university graduates found themselves forced to take jobs they were overqualified for. This slashed their earnings potential over the longer term (high-school graduates fared even worse).2

About 80 per cent of millennials say the financial crisis taught them to put away money for a rainy day.3 Asked how they would use a tax refund, 39 per cent of millennials said they would save it. Just 33 per cent of baby boomers and 23 per cent of Generation Xers said the same.4

US student loan balances by age group ($ billions)

Investment implications

Many millennials have enjoyed the benefits of higher education but it has left them with big student loan debt, especially in the US. And they are also struggling to get onto the housing ladder. The problem is acute in the UK, where a house now costs seven times the average income.

Housing was expensive even before the crisis, but quantitative easing policies exacerbated the problem by boosting asset prices. This fed wealth inequality between generations.

There may be light at the end of the tunnel. Stronger US growth in 2017 enabled more millennials to begin to pay off their student debt and get onto the first rung of the housing ladder, albeit later than previous generations.5

But while millennials’ economic prospects may be improving, their spending patterns bear the imprint of the economic pressures they faced when they were younger. They are extremely picky customers, consulting multiple online sources of feedback before parting with their cash.

“Millennials want fast, cheap deliveries, and that’s had a ripple effect through the whole retail industry. It has forced legacy retailers to match online leaders like Amazon. Companies that don’t meet those expectations for fast, high-quality service will be punished.”
Jason Bohnet, senior research analyst at Aviva Investors

Sharing economy

In fact millennials are buying less physical ‘stuff’ altogether. This is partly because of their constraints in living space, partly because technology gives them other options. Why buy DVDs when you can log in to Netflix?

Millennials are big consumers of online media, which is spurring the onward rise of the big technology companies. Facebook, Apple, Amazon, Netflix and Google added more than $1 trillion in market value last year.

When they do buy physical assets, millennials appear to be willing to share them to earn extra income. This could feed the continued growth of the ‘sharing economy’. The phrase refers to platforms that let asset owners lease them out.

Airbnb, on which property owners can rent rooms to tourists, is the best known. But sharing platforms are also cropping up in other sectors. French company Zilok enables sharing of equipment such as skis and tents.

Sharing companies often rise very fast on the back of private funding. The sector is attracting more venture capital finance than any other category. Consulting firm Pricewaterhouse Cooper’s estimates sharing revenues will grow 25 per cent annually over the next decade to $335 billion by 2025.6

Millennial money

Man using a mobile phone
A user-friendly smartphone experience is essential

Millennial traits are also reshaping banking and asset management. Simply offering an online service is no longer enough for companies hoping to help millennials manage their money. A user-friendly smartphone experience is essential.  

This has led to the rise of digital ‘challenger’ banks. US-based Chime and Atom and Monzo in the UK run apps that enable millennials to track their monthly spending, transfer cash and split restaurant bills.

Financial services based on peer-to-peer models are also catering to millennials. Inspired by social media, Berlin-based start-up Friendsurance connects small groups of people with the same kind of policy who hope to keep claims low.

Not all of the new fintech concepts targeting millennials will succeed. But incumbents may need to adjust to the disruption they could cause. Some big asset managers are specifically targeting young investors with new digital platforms.7

So what are the outcomes millennials are looking for? One recent study shows they are risk-averse investors. Millennials tend to hold at least half of their assets in cash, one third in equities and around 15 per cent in fixed income.8

Evidence also suggests they are more likely to target environmental, social and governance metrics than other generations. This may create opportunities for managers that take ESG into account.9

Talkin’ bout my generation

Millennials are becoming more influential as consumers and investors. But it remains to be seen whether the recent positive trends will continue.

In millennials’ favour is their growing electoral clout. Voter turnout rates tend to be higher among baby boomers. But millennials are set to be the biggest and most powerful political force in America by 2024.10

The Ipsos research shows millennials in many countries are less likely to be loyal to a party than their predecessors. This means politicians will have to think up incentives to earn their votes. Intergenerational unfairness is growing as a topic of public debate in the UK.

Millennials had a tough start in life, and the stereotypes only added insult to economic injury. But like the baby boomers before them, they are beginning to make their voices heard in business and politics as the shadow of the crisis lifts.

Perhaps the kids are alright after all.


Rob Davies         

James Whiteman


1. Millennial myths and realities, Ipsos MORI, July 2017

2. See Paul Taylor, The Next America: Boomers, millennials, and the looming generational showdown, 2016

3. ‘2014 Wells Fargo millennials study’, April 2014

4. ‘Famously frugal: nearly 40 per cent of millennials will stash their tax refund’, NBC News, March 2017

5. ‘Millennials dominating mortgage originations at the expense of taking on more debt’,, December 2017

6. The sharing economy, PriceWaterHouse Coopers, April 2015

7. ‘Morgan Stanley woos millennials via robo-adviser with ETFs’, Bloomberg, December 2017

8. Wells Fargo

9. ‘Sustainable investment joins the mainstream’, The Economist, November 2017

10. ‘Millennials to pass baby boomers as largest voter-eligible age group, and what it means’, CNN, July 2017