Commentary

Millennials vs. Boomers: Who Will Boost Consumer Spending?

I walked to my little local market this morning in Boston and saw the latest issue of Barron’s on the newsstand. The cover story is all about U.S. Millennials: those 18- to 37-year-olds who, according to this article, are the future of the U.S. economy because they are poised to drive consumer spending like nobody’s business. I resisted the typical Boomer impulse to buy the paper and instead went home to read the article on my iPad. The article is a fascinating read, but I think they missed a key point.

Milleninals probably won’t drive spending!

First, a little context.

I was always confused about just what age groups represent the Millennials since everyone seems to define it a little differently. This article, and a couple of other sources now, have clearly settled on those born between 1976 and 1995. Many of you reading this even have Millennial kids (or employ them) so probably know them well.

The vital stats associated with this group are these: there are about 86 million of them, a cohort roughly 7 percent larger than their Boomer parents’ generation. Some think that it’s even possible that this group will get a smidge larger in the next few years because of immigration. It’s the most connected generation on the planet. Their early adoption of and subsequent addiction to smartphones has driven the explosive growth of new media channels and the burgeoning industry of tools and tactics that tap into their desire to stay connected 24/7. Pew Research reports that 75 percent of 25- to 34-year-olds own a smartphone and 90 percent of them use the Internet. Relative to payments and commerce, this connectivity and comfort level with accessing the Internet has also fueled their interest in using phones as part of the shopping experience – checking in and downloading coupons and mobile apps that allow them to pay in store. As a result, this group has taken multi-tasking to a completely new level – it’s reported that they toggle between devices and channels about 30 times an hour. So, if you ever wonder what your Millennial workforce is doing during the day, now you know.

But, it isn’t as if their parents are cave dwelling Luddites either. Roughly, 80 percent of Boomers are on the Internet and nearly 50 percent own a smartphone – many do so for no other reason than to communicate with their Millennial offspring. Did I mention I read the Barron’s article on my iPad?

Now to the point of the article.

Millennial spending power is estimated to be 21 percent of all consumer spending, or roughly $1.3 trillion. Many analysts believe that as the economy pulls out of its current sluggish spate, that their spending will restore our annual growth rates of consumer spending to between 3.5 percent and 4 percent – or about double what it is now. But, doing this assumes that said Millennials will have jobs and discretionary money to spend — that is after they’ve paid for housing, essentials, and their massive student debt – and there’s where it gets a little dicey.

At 13.1 percent, they have the highest generational unemployment rates in the U.S. And while 75 percent of Millennials have recovered the jobs they lost during the financial crash, many have taken jobs at a much lower salary rate (anywhere from ~6 percent to 12 percent lower) just to earn income (or because Mom and Dad told them to). The bad news here is that a lower base means a harder time making up the difference longer term. According to the National Bureau of Economic Research, 70 percent of all overall wage growth takes place in the first 10 years of employment. And, speaking of Mom and Dad, some analysts report that nearly 40 percent of Americans between 18 and 34 still live at home; numbers that experts say haven’t been seen in over 70 years. (Roughly 19 percent of men 24 – 34 live at home and 10 percent of women that age do as well.) Trust me, Mom and Dad will eventually give these kids the boot and they’ll have to spend their income on, oh, housing themselves.

Not to pile on, but the unemployment/lower wage-earning picture is compounded by the fact that this group comes out of school owing about $1 trillion in student debt. Un/underemployment, plus student debt, has also caused many Millennials to postpone or even shun altogether the prospect of having kids. Birth rates for this group are way down, which means a smaller workforce to support them in their retirement years and more pressure on them to save for their own retirement. Actually, that’s one of the reasons that Barron’s is so bullish on the Millennials. They believe that the necessity for this group to buy stocks and invest for their older years will drive continued growth in the markets. Well, at least that’s something positive for all of our 401Ks! These kids also probably can’t count on cashing in on Mom and Dad when they do their final checkout since the Millennial parents are going to live for a long time (have you seen the new Boomer bumper sticker …. Don’t mind me, I am spending my kid’s inheritance) and many had their assets really whacked during the financial crisis.

So, while Barron’s may think that Millennials are the silver lining in the consumer spending cloud, it just may well be that those 76 million Boomer parents save the day.

Nielsen reported at the end of the summer last year that Boomers will control 70 percent of all disposable income within the next five years, and today drive about half of all consumer package good spending. In part because they lost their jobs in the financial crisis (and had to do something to support their Millennial kids still living at home, perhaps), those 45- to 65-year-olds dominate new business creation and not only generate income but spending in B2B categories as well. And even though this generation has taken a hit in terms of median family net worth, the Economic Policy Institute tells U.S. that their net worth is three times that of Millennials, and that those 55 and older control about 75 percent of the wealth in the U.S.

That means that this group, unlike the Millennials, has money to spend.

In fact, the Government Consumer Expenditure Survey reports that Boomers outspend other generations by some $400 billion each year on consumer goods and services. And, females drive a bulk of that spending – in fact, this same survey reported that Boomer women over 50 spend $21 billion on clothes annually. Turns out that girl power is both stylish and powerful!

But, as we’ve seen, just because Boomers have money doesn’t mean that they’ll spend it. The financial crisis has caused Boomers to hang back and keep their wallets closed shut. Sure, Millennials are moving into the time in their lives when they buy homes and accumulate possessions to furnish those homes, and those who are inclined will even start families. But even so, the number of Millennials spending won’t overtake the volume of spend that the Boomers will drive on the things that can move the consumer spending needle. Boomers spending will be focused on the discretionary items that they want and/or like to have, not that they need to have – and often with much higher ticket prices. When Boomers feel comfortable enough in the country’s economic prospects, I believe it will be they who propel consumer spending and economic growth and not the Millennials.

The implications for payments and commerce are, I think, interesting. One of the other stats that Nielson reported last summer was the amount of advertising directed to Boomers – less than 5 percent – favoring instead the Millennials who are out for a “fun” and “high tech” experience when contemplating purchases. It’s the same thing in payments when thinking about the application of mobile payments and commerce strategies. Many of the initiatives play on what’s appealing to younger group and how they use mobile technologies – instead of what may be useful to those who may actually drive a great deal of spend. It’s what’s driving the intense focus on mobile-enabled points of sale and commerce, leveraging the smart mobile device on and offline. JC Penney may have fallen prey to this a little bit at their peril when it went whole hog into a makeover driven by new technologies in store, and messages and merchandising pegged for Millennials – the target group they wanted to court as customers. As we have now seen, it unfortunately turned off their Boomer customer base that drove sales. (There is a lot more to this story, of course – see my piece on JCP here.)

Now, all of this report’s broad sweeping generalizations across tens of millions of people and those sorts of things can be misleading. There are, of course, common themes that cross generations. Affluent Millennials and Boomers, for example, are both early adopters of new technologies – all one has to do is stand in line at a Starbucks and observe who whips open their Starbucks app to see that in action. Pew reports that nearly 70 percent of those with incomes over $70k own a smartphone. These groups – regardless of age – have similar tablet-centric use cases and spending patterns, and habits and are clearly spurring the growth in mobile-enabled commerce. That’s why it’s dangerous to make broad-sweeping decisions about mobile functionality and adoption and use cases based strictly on age cohorts – it overlooks other important inputs that in this case can directly link spending power to device adoption, as well as use cases that can ignite mobile commerce.

Now, I’m not suggesting that we all rethink mobile commerce by doing things like making the fonts larger so that Boomers can read things easier, but it might not be a bad idea to take a closer look at where the bulk of spending happens today, and who drives it. And, then create a mobile commerce experience that adds value to that consumer and her shopping journey. The pendulum seems, thankfully, to be shifting away from mobile commerce as “cool” to mobile commerce as a value-add to the shopping experience. The debate though is who is pushing the shopping cart – the Millennial or her mother – and who will most influence the adoption of a mobile-enabled commerce experience. It’s marketing 101 that when introducing new products and services, one always targets those with money to spend. In the case of mobile commerce, though, the bet the industry seems to have placed is on those who might spend someday. Big spending Boomers will be sticking around for a long time – the oldest ones today are mid 60’s and have another 20 years to go – further increasing their importance for spend (and perhaps reducing what will flow to their Millennial kids). And they love their iPads and iPhones.

So, could it be time to revisit our thinking just a little bit?

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New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.

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