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Tags: Millennials | Different | Baby | Boomers

Millennials Are Different Than Baby Boomers

Millennials Are Different Than Baby Boomers

Dr. Edward Yardeni By Tuesday, 25 April 2017 01:45 PM Current | Bio | Archive

During most of my career, my demographic work focused on the impact of the Baby Boom cohort on the economy. However, in recent years, the Millennials have become just as important. They are the generation that is replacing the Baby Boomers as they retire. I reckon that the Millennials were born between 1981 and 1996, making them 20 to 35 years old during 2016 (Fig. 1). I figure they are mostly out of college and have entered the labor force, and are mostly working.

What they aren’t doing is rushing to get married and have kids. In the US, the median age at first marriage during 2015 was 29.2 years old for males, up from 23.5 years old during 1975. For women, this matrimonial age rose from 21.1 years old to 27.1 years old over this period (Fig. 2). Data compiled by the National Center for Health Statistics show that the average age of first-time mothers rose from 24.9 years old in 2000 to 26.3 years old in 2014. No wonder that the general fertility rate has been flat-lining at a record low since the mid-1970s (Fig. 3).

These demographic trends are likely to weigh on economic growth, though much depends on whether and when more Millennials might decide to marry, have kids, and buy houses. My hunch is that more will once they turn 30 years old. The oldest of them started to do so in 2011 (at the same time as the oldest Baby Boomers turned 65 years old), and will continue to do so until 2026 when the youngest Millennials will turn 30.

I can understand why the Millennials might be less inclined to be rearing a family. When I was growing up as a Baby Boomer, we tended to marry our high-school or college sweethearts. That was likely to be as good as it gets. Now thanks to the Internet and social media tools such as Tinder and Cupid, young adults can hook up until they get bored and move on to another “friend with benefits.” So couples have to fall truly in love and want to have kids to get married these days. Raising kids is certainly much more expensive than in the past given record-high home prices and soaring college tuition costs.

To monitor the Millennials’ demographic impact on the economy, Melissa and I track the quarterly household formations report compiled by the Census Bureau. It also shows whether the new households are renters or homeowners. Needless to say, the decision to rent or to buy a home is also affected by current and expected economic conditions. When people are doing well and are optimistic about the future, home buying is likely to be more appealing than during bad times, when confidence is depressed and renting seems like a safer option. The level of mortgage interest rates and the prices of homes, as well as the expected appreciation of those prices, are further considerations in the rent-versus-own decision.

The data, which is available since the end of 1956, show that household formation was brisk during the mid-2000s (Fig. 4). Most of the new households bought homes rather than rented them (Fig. 5). When the housing bubble burst starting in 2007, and as mortgages became much harder to obtain, household formation slowed dramatically through mid-2014, with the number of homeowners declining, while renting became increasingly popular. By the second half of 2014, household formation rebounded, though renting continued significantly to outpace owning. The percentage of households renting rather than owning a housing unit remained high at 36.3% during 2016, up from a record low of 30.8% during 2004 (Fig. 6).

Anecdotal evidence suggests that many Millennials prefer to rent in urban areas rather than to own a home in the suburbs. In addition, the Millennials don’t view homes as a safe asset after seeing the housing bubble burst. Those who would like to buy a home are facing much tougher lending standards following the financial crisis of 2008. So it’s no wonder that many of the Millennials, along with other potential first-time homebuyers, aren’t buying homes but are renting instead.

The percentage of homeownership among all households dropped from a record high of 69.2% during Q4-2004 to 62.9% during Q2-2016, the lowest since the start of the data in Q1-1965 (Fig. 7). Ownership rates have dropped for all age groups, but the biggest declines since their 2004 peaks have been for those under 35 years old (down from 43.6% to 34.1%) and those between 35-44 years old (down from 70.0% to 58.3%) (Fig. 8).

Contributing to the renter boom is the growing number of people who are single rather than married. Since the start of 2014, for the first time ever in the US, the number of singles in the working-age population—which includes everyone 16 years of age or older—equaled the number of married people (Fig. 9). That’s up from 42% 30 years ago to 50% now (Fig. 10). At the end of 2016, 30.5% of the working-age population was never married (up from 22.1% in 1976) and 19.5% was divorced, separated, or widowed (up from 15.3% in 1976) (Fig. 11 and Fig. 12). The former includes lots of Millennials, while the latter includes lots of Baby Boomers. There are more singles because Millennials are getting married later in life, while the Baby Boomers are living longer and losing their spouses along the way for one reason or another.

US Demography II: Alternative Adulthood. Melissa happens to be our in-house Millennial. She is a senior member of this cohort, and has been staying current on her peers. She reports that while many Millennials still desire the American dream of a family in their own house, lots of them also have embraced a minimalist mindset. It’s not that they don’t want to own anything, but rather want only stuff that they actually need—no frills and trophies for them! Many of them would rather enjoy a cool experience that they can brag about on Instagram than buy the newest hot sneakers or handbag.

Many Millennials were children during the 1980s and 1990s, growing up with materialistic parents who indulged in flashy lifestyles. When they were in their teens and early twenties, many watched their parents struggle financially following the Great Recession. They don’t want to make the same mistakes that their parents did. Besides, many Millennials are saddled with student loans and have struggled to find good-paying entry-level jobs after graduating from school.

Living a modest lifestyle takes less effort and is more appealing to lots of Millennials than the lavish lifestyles of the rich and famous. The widespread view is that the Millennials have delayed adulthood. That’s probably wrong. Instead, many of them simply are embracing their own version of what it takes to be a financially responsible adult. Consider the following:

(1) Prius over Porsche. “Millennials have produced plenty of anxiety for automakers. As the stereotype goes, entitled young adults would prefer to hail an Uber, take public transportation or even hitch a ride from Mom instead of driving; an unusually large number of young millennials haven’t even bothered to get a driver’s license,” according to the caricature laid out by a 12/23/16 LA Times article.

Recent data, however, present a more nuanced view of Millennials’ attitudes toward cars. Many of them aren’t rejecting car ownership, but rather delaying it. In a study last year, JD Power’s Power information network reported that the share of Millennials in the new car market jumped to 28% from just 17% in 2010. Likewise, a 2015 Cars.com study found that 35% of Millennials plan to purchase a vehicle in the next 12 months compared to 25% of total US adults.

One theory for why Millennials put off car buying is that cars don’t represent an “aspirational” purchase as for many of their parents. The key to Millennials’ purchase satisfaction is value for money, observed the press release for the JD Power’s study. Instead of viewing a fancy luxury car as a status symbol as generations before them had, many Millennials have more basic aspirations.

“Millennials tend to view cars as more of a practical need than an emotional want,” noted Cars.com. Many millennials will buy a good value car just when it becomes necessary to own one. According to a 32-year-old San Diego real estate agent quoted in the LA Times article: “I see a lot of people my age have affordable, reliable cars. I bought my Prius because I wanted to get great gas mileage.”

Another nationwide study, commissioned by the personal finance blog NerdWallet last year, showed that young adults think that the costs of owning a car, including maintenance and insurance, are a drag. But they don’t regret buying a car after the fact. However, they are taking on less auto debt as their student loan debt has risen over the years.

(2) Cottage over mansion. The tiny house movement is particularly popular among those under the age of 35 and Baby Boomers, observed a 2016 USA Today article, which highlighted an informal social media survey that showed nearly 40% of respondents had lived in dwellings less than 500 square feet in size at some point. While there were just an estimated 10,000 tiny houses in the US last year, the mini-movement itself speaks to the Millennials’ preference toward minimalism.

“Those taking part in the budding movement often embrace the lifestyle because it allows them to leave a smaller environmental footprint, live mortgage free, and because the houses are often on wheels, to pick up and pursue a new career or passion without worrying about having to sell or find a new home,” explained the article, which was titled “Recession-scarred Millennials fuel growing interest in tiny homes.”

(3) Experiences over stuff. This month, the US Census Bureau released a report titled The Changing Economics and Demographics of Young Adulthood: 1975-2016. Most of the statistics included within the report aren’t new news. Nevertheless, the report’s conclusion supports the case that many young adults are making responsible adult-like decisions; they just aren’t embracing the traditional notions of adulthood held by previous generations.

The report concludes: “That young people wait to settle down and start families tells us about their behavior, but not how they feel about their experiences. More than half of all Americans [today] believe that getting married and having children are not important to becoming an adult. In contrast, more than 9 in 10 Americans believe that finishing school and being gainfully employed are important milestones of adulthood.” Most Americans today believe that financial security should come well before marriage.

The report continued: “The complexity of the pathways to adulthood extends to economic conditions, as well. Today, more young people work full-time and have a college degree than their peers did in 1975, but fewer own their home. Whereas young women have made economic gains, some young men are falling behind … Taken together, the changing demographic and economic experiences of young adults reveal a period of adulthood that has grown more complex since 1975, a period of changing roles and new transitions as young people redefine what it means to become adults.”

In our view, as notions of what it means to be an adult have expanded to include more variations, many young adults have chosen to live more simply, owning less stuff and shoring up their finances by focusing on value.

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.

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In our view, as notions of what it means to be an adult have expanded to include more variations, many young adults have chosen to live more simply, owning less stuff and shoring up their finances by focusing on value.
Millennials, Different, Baby, Boomers
Tuesday, 25 April 2017 01:45 PM
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