Generational Differences in Handling Money

The baby boom generation is the demographic engine that has driven U.S. economic growth over the past 50 years. But now, as boomers work less, spend less, retire and draw on retirement funds, that baton is being handed over to Generation X and millennials. The economy is fueled by consumer spending, so the people who buy the most cars, houses, staples and luxury items are in a position to call the shots. How will younger generations handle their wealth and power?

But first, here’s a quick rundown of the generations, according to the Pew Research Center:1

• Silent generation: Born 1928 – 1945
• Baby boomers: Born 1946 – 1964
• Generation X: Born 1965 – 1980
• Millennials: Born 1981 – 1996
• Generation Z: Born 1997 – 2012

Regarding Gen Xers and millennials’ attitudes about money, a recent study shows millennials, in particular, have shown more interest than their elders in seeking guidance from financial professionals at a younger age. For them, it’s not about waiting until they’re close to retirement age to get professional input. They seek it after they reach milestones such as getting married, having children and making a big purchase.2

In some ways, the millennial generation resembles the silent generation in its approach to money. One experienced the Great Depression, while the other weathered the 2008 recession as burgeoning adults — aware of the impact that loss can have on a household.3 These lessons can run deep and don’t often go away, even after people recover and accumulate wealth. That’s not necessarily a bad thing. If you’re interested in feeling more confident about your own financial future, we have some ideas that can help you achieve your goals. Feel free to give us a call.

According to the Bureau of Labor Statistics’ Consumer Expenditure Survey, here’s what the different demographics spend, on average, on housing:4

• Millennials spend nearly $17,000 on housing each year, which is around 35% of their total annual spending.
• Only one-third of millennials own a home, although the demographic as a whole is the largest generation of homebuyers.
• Gen Xers spend nearly $23,000 a year on their homes, which is 33% of their total annual spending.
• Three in five Gen Xers own a home.
• Baby boomers spend an average of $19,000 a year on housing, accounting for 31% of their annual spending.
• Three-quarters of baby boomers own their home; nearly half are mortgage free.
• Among the silent generation, housing accounts for 35% of their spending.
• Nearly 80% percent of the elderly own a home; 40% still pay on a mortgage.

Baby boomers are throwing a wrench into the plans of millennials who may be ready to buy a house. Boomers are staying in their homes longer, which is keeping about 1.6 million houses off the national residential market, according to a Freddie Mac analysis. This means younger generations don’t have as many choices when they want to buy a house or trade up to a more expensive home.5

One reason for the shortage is that more than half of baby boomers plan to age in place and are renovating their homes to accommodate future needs, a recent survey found. To this end, the demographic has outspent all other generations in home improvement projects by nearly a third. This multigenerational trend has bolstered the entire renovation industry, as younger buyers, unable to afford pricey houses, are purchasing older homes and remodeling them to meet their needs. Millennials are twice as likely as baby boomers to complete bathroom and kitchen remodeling projects and are being called the “renovation generation.”6

Millennials is are also choosing to travel more than previous generations. In 2019, the average millennial planned to take about five trips during the year, many of them international. That’s more international trips than Gen Xers take, and more overall trips than baby boomers. How can they afford to travel so much? Many do it on the cheap, staying at Airbnb residences instead of hotels, taking shorter trips and scouring the internet for transportation deals. On average, frugal millennials in 2019 were planning to spend $4,400 on travel compared to $5,400 for Gen Xers and $6,600 for baby boomers.7

Content prepared by Kara Stefan Communications.

1 Michael Dimock. Pew Research Center. Jan. 17, 2019. “Defining generations: Where Millennials end and Generation Z begins.” https://www.pewresearch.org/fact-tank/2019/01/17/where-millennials-end-and-generation-z-begins/. Accessed Sept. 12, 2019.

2 Global X by Mirae Asset. 2019. “Beyond Baby Boomers: 7 Tips to Prepare for the Rise of Millennials and Gen X investors.” https://cdn.globalxetfs.com/content/files/Beyond-Baby-Boomers-19aug06.pdf. Accessed Sept. 3, 2019. 

3 Hillary Hoffower. Business Insider. “The Great Recession created a domino effect of financial struggles for millennials — here are 5 ways it shaped the generation.” https://www.businessinsider.com/how-the-great-recession-affected-millennials-2019-8. Accessed Sept. 12, 2019.

4 Taylor Tepper. Bankrate. March 28, 2018. “How different generations spend their money.” https://www.bankrate.com/banking/savings/how-different-generations-spend-boost-savings/. Accessed Sept. 3, 2019.

5 Joanne Cleaver. Chicago Tribune. June 19, 2019. “Chicago housing market hurdle: As baby boomers stay put, millennials struggle to find starter homes.” https://www.chicagotribune.com/real-estate/ct-re-millennial-baby-boomer-housing-shortage-20190623-story.html. Accessed Sept. 12, 2019. 

6 Genevieve De Vera. mHelpDeskNews. March 18, 2019. “Housing and Home Renovation Trends to Know: Millennials vs. Baby Boomers.” https://news.mhelpdesk.com/field-service-industries/housing-and-home-renovation-trends-millennials-baby-boomers/. Accessed Sept. 3, 2019. 

7 Megan Leonhardt. CNBC. Aug. 30, 2019. “Millennials are making travel a priority more than previous generations — that's not a bad thing.” https://www.cnbc.com/2019/08/30/millennials-making-travel-a-priority-more-than-previous-generations.html. Accessed Sept. 3, 2019. 

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.