Millennial consumer habits don’t represent a cultural change, as much as a time shift.
Concocting the special sauce for marketing to Millennials has become a major preoccupation of professionals across the spectrum — consumer goods companies, home builders, financial planners. Current conventional wisdom holds that as this generation ages, it will consume products and services much differently than previous generations, suggesting businesses would need an entirely original marketing plan to win their attention.
But the fact is that the Millennial generation will actually consume much like previous generations — what has changed is when younger consumers will start exhibiting the same consumption patterns. Marketers must realize this important distinction, which is caused by specific economic and social factors.
Perhaps not surprisingly, the Great Recession played a big role in this generational shift. Looking at the number of new renters and homeowners, household formation started to plummet in 2008 after having averaged more than 1.3 million a year since the early 1990s. Fewer than 775,000 households were formed in 2008, with fewer than 400,000 in each of the following two years — resulting in a 2.5 million gap from the average over the three-year span.
The Great Recession Generation
While the household formation has returned to around its long-term average in recent years, the downturn hurt more than just the housing or rental markets — impacting everything from home-improvement businesses to grocers, utility companies to local Main Street shops.
In fact, the Great Recession is a big reason why Millennials have not struck out on their own at the same extent of previous generations, for a number of reasons:
1. The impact on employment was disproportionately hard on young workers.
Before the downturn, the gap between the employment rate for adults aged 20 to 24 and the overall population had averaged around 3.6 percentage points since the early ‘90s. So if the overall rate was 5.5 percent, the rate for this younger age cohort was around 9 percent.
But since the end of 2008, the difference has been consistently over 5 percentage points — peaking in April 2010, when the jobless rate for 20 to 24 year olds reached a whopping 17.2 percent, versus a 10.3 percent overall rate. For an age group that should be finding a first job out of college or in a trade, times were really tough. Without income, forming a household becomes a task that is unlikely to be accomplished.
2. The Millennial generation is staying on the market longer.
The trend of waiting to get married has been in place for decades. Only about a quarter of adults aged 18 to 32 were married in 2013, according to the Pew Research Center. This compares to more than a third of people this age who were married a generation earlier — and nearly two-thirds in 1960.
Marriage had traditionally been the starting point when young adults leave the nest to start their own households. As fewer people get married at a young age, that push to leave the nest is dissipating.
Delaying marriage has had an impact on home buying, as well. Only a third of people who purchased a home in the past year were first-time home buyers, the National Association of Realtors recently reported, well below the long-term average of about 40 percent.
Over the past several years, apartment rental rates have been rising, housing has been at record levels of affordability, and interest rates have been at rock bottom levels. The housing market has been ripe for first-time buyers, but it helps to have a job to be able to buy a home.
3. Millennials are staying in school longer.
The Millennial generation is also the first to have a larger percentage of people who graduated with at least a bachelor’s degree than completed their education with a high school diploma, according to Pew — a significant change from a generation ago. In 1996, a third of the population stopped after high school, while a quarter went on to get a bachelor’s degree. By 2013, those numbers had flip-flopped.
People are staying in school longer, and therefore waiting to form households. It’s also a factor behind the increase in student loan debt — more college students equals more student loans.
This phenomenon has likely caused a drop in the number of people that choose employment in a trade, as well. The snowball effect could cause a spike in labor costs for traditional blue collar services if there is a crunch in the availability of talent in those industries.
Student Debt and the Talent Gap
The New York Times Magazine ran an article last year profiling how Millennials are coping with the growing student debt load. The fourteen adults interviewed for the piece carried a total student loan burden (including one person’s credit card debt) of $636,000 — or about $45,400 per person.
There were some commonalities among the 14 interviewees. All were currently employed and still living at their parent’s home — mainly due to their high level of debt. All had bachelor of arts degrees. None were employed in any of the STEM (science, technology, engineering and math), though one had earned a degree in biology.
A transformation in how people work, enabled by technology and other shifts toward a new Future of Work, is providing opportunities for those with high-tech and engineering degrees. But there remains a gap between the skill sets of recent grads and the expertise sought after by employers.
With student loan levels already so high, it is unlikely that this mismatch can be rectified by further debt-funded schooling. In coming years, businesses will need to work with administrators of higher education to better align curriculum with needs.
When I’m 84 …
Finally, how long we live also impacts when we undertake key life events. Life expectancy is now just under 80 years in ihe United States, up 10 years from the 1960s, according to the Centers for Disease Control and Prevention. Every generation lives longer than the previous one, so expectations of how long we are going to live also adjust upward.
The Millennial generation assumes that the 80s are a given, with 100 a strong possibility. They are inundated with messages that the Social Security system is broken, so that they will have to work long past the retirement age of their parents. Whereas having children in your 40s was a rarity a generation ago, medical advances have made it more commonplace today. The reality of the Millennial mindset today, at least subconsciously, is to push back certain major life events.
All of this evidence points to the fact that marketers need to focus their efforts on identifying when the Millennial generation will reach those life stages — rather than trying to create entirely new ways to market to this group. This generation is staying in school longer, waiting to get married and putting off home buying. Millennials have been burdened by a weak job market, rising student debt and an education that is mismatched with the needs of today’s businesses. They have been told they will live longer than their parents, but that their parents have left them with a financial situation that will force them to have to work through many of those extra years of life.
The Millennial generation is in no hurry to hit their life stages at the same points as previous generations. Marketers should exercise similar patience.
(Top image: Courtesy of Thinkstock)
John Paul Soltesz is Market Strategy Leader for GE.