Millennials don’t spend money all that differently from past generations. They just have less of it.
Such is the finding of a recent study by economists at the Federal Reserve Board, which has been greeted as a rejoinder to the roughly 3,001 trend pieces published this decade about how young adult consumer habits are either changing the economy, or leading today’s twenty and thirtysomethings into a financial black hole. You know the stories. Millennials don’t like buying cars. We don’t save for retirement because we spend too much money eating out. We killed canned tuna and American cheese. The common theme running through many of these pieces is that millennials’ spending decisions aren’t driven merely by financial circumstances, but also changing tastes. We treasure avocados and walkable cities and prefer spending on data plans than car payments.
Not so, the Fed paper seemingly suggests. The researchers show that while millennials households are less wealthy and, by some measures, have lower incomes than previous cohorts, when it comes to spending and saving they aren’t all that unique.
This will undoubtedly be satisfying for every 32-year-old who is tired of being written about as a bizarre and fickle subspecies of American consumer. But reader, I have some bad news for you: This study does not, in fact, debunk every weird trend piece about young adult shoppers. It mostly debunks one I co-wrote six years ago. Let me explain.
Back in 2012, Derek Thompson and I published an article in the Atlantic titled “The Cheapest Generation.” (We didn’t pick the headline, but have been getting flack about it from aggrieved readers ever since.) At the time, data showed that homeownership had collapsed among the young, who were also shrinking as a share of new car buyers. Some of the reasons why were obvious: The Great Recession had left masses of young people unemployed or underpaid while college grads were staggering under unheard of student debt loads. But we also argued that, in the future, millennials might buy fewer, as not to mention smaller, houses and cars, for cultural and technological reasons. Young people liked urban, walkable neighborhoods, and the sharing economy made buying a ride less necessary (Zipcar featured prominently in the story, I shudder to tell you). There was a shift in the zeitgeist underway among our peers, we insisted, and that could have implications for the shape of the economy.
This is the hypothesis the Fed researchers set out to test with some academic rigor: that millennials actually want to live a lower-cost lifestyle. That they are, to put it a bit trollishly, cheap. Their answer is a pretty unequivocal no. (And yes, the “Cheapest Generation” does show up in their footnotes, listed among a number of similar similar works of journalism the paper basically sets out to steamroll). Using a variety of data sets, the paper compares millennials’ family finances and shopping budgets with those of Generation X and the baby boomers when they were roughly the same age. “We find little evidence that millennial households have tastes and preference for consumption that are lower than those of earlier generations, once the effects of age, income, and a wide range of demographic characteristics are taken into account,” they conclude. “This conclusion also holds for spending on automobiles, food, and housing.”
What the researchers do find is that millennials—who they define as Americans born between 1981 and 1997—are relatively broke. The average net worth—assets, minus debts—of a young adult household in 2016 was 20 percent less than baby boomer households in 1989 and 40 percent less than Gen X households in 2001. The deficit is driven in large part the by the fact that millennials are much less likely to own homes and much more likely to have student debt. (It’s also in keeping with another Federal Reserve study from this year showing that millennials are trailing far behind previous generations on wealth accumulation, even though they have comparable savings habits.) Income is a somewhat more complicated picture, but after controlling for age, education, demographics, and other factors, the paper finds millennials who work full-time earn less than boomers and Gen X did. It’s really not a stretch to call this generation overeducated and underpaid.1
As for spending? Over and over again, the paper shows that millennials really aren’t that remarkable. Looking at our total budgets, millennials consume a little bit more, on average, than baby boomers, and a bit less than Gen X did at this stage of life.