|June 21, 2012||Posted by Roshawn Watson under Uncategorized|
By: Roshawn Watson
Increasingly, retailers, movie studios, and home improvement chains have been whining about Generation Y. “Generation Y won’t go to the movies.” “Generation Y won’t buy our [overpriced] labels.” Generation Y “is to blame for our crappy sales.” Huh?!?
First, the notion that businesses feel entitled to the Millennials’ money is borderline comical. Calling them “Generation Y Bother” because of slumping sales is not only unnecessary, it is missing a key point: many members of Generation Y are frugal out of necessity. Traditional rites of passage have been deferred if not forsaken altogether. While there are more opportunities to be prosperous than ever before, there are also more competition and challenging economic realities that cannot be ignored. If anyone has been slighted recently, it is Generation Y. For many, the lifestyles that were promised when they began their journeys have been “stolen.” Here are some reasons to cut Generation Y some slack.
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Generation Y is Indebted
The balance sheets of many 18 to 34 year olds suck. According to the Pew Research Center, households led by those younger than 35 had 68% less inflation-adjusted wealth than households headed by the same demographics in 1984.1 That’s right, net worth regressed big time, and I bet you can guess why: debt (particularly student loan debt). Too often, we promote education without any regards for costs. Well those costs have increased far more than American incomes. According to the Economist, the “median household income has grown by a factor of 6.5 in the past 40 years, but the cost of attending a state college has increased by a factor of 15 for in-state students and 24 for out-of-state students.” Many students make up the difference with student loans. As recently as 1996, the average student loan debt was $17,000, but now it tops $25,000 for a bachelor’s degree. Generation Y also has credit card debt, as 20% report balances over $10,000.
The implications of this debt are enormous! First, the debt dramatically decreases quality of life. It adds stress to relationships, and financial problems are among the top cited causes of divorce. Interestingly, the Pew Research Center indicates that 20% of 18-to-34-year olds have reported delaying marriage and 22% have reported delaying having children for financial reasons. Parents are increasingly being affected as well. Some parents are even delaying their own retirements because they cosigned student loans for their children. Additionally, a whopping 24% of graduates move back into their parents home at least once, hence the phrase the “Boomerang Generation.” Unfortunately, many graduates end up keeping their student loans for a very long time. Even President Obama, 50 years old, only paid off his student loans 8 years ago. Bankruptcy doesn’t offer reprieve from student loans either, as meeting the hardship criteria required to include student loans in a bankruptcy is tremendously difficult.
If Generation Y is trying to climb out of their sizable financial holes, why would businesses reasonably expect them to rush to purchase mediocre or overpriced products and services?
Related Article: Student Loan Debt Destroying Quality of Life
Generation Y is Out of Work
Increasingly, Millennials are having tough times achieving the same lifestyles that they grew accustomed to growing up. Many expected to instantly duplicate the standards of living that their parents took years to acquire. However, the “Great” Recession has eroded Generation Y’s disposable income, so money for eating out, buying new clothes, and pursuing hobbies is often tight.
One reason for this is that the job market has not been particularly kind to Generation Y. Even if they secured good jobs, their limited experience placed Millennials in precarious positions: “last one hired, first one fired.” Generation Y is one of the groups affected most disproportionately by unemployment. National unemployment is 8.2% (Bureau of Labor Statistics) as of May, but the employment of those between 18-24 year olds is only 54% (the lowest since data starting being compiled in 1948). Moreover, 49% of 18-34 year olds say they have taken jobs that they didn’t want just to pay the bills. Imagine enrolling in school with the understanding that the market was “hot” for people with your educational background, only to discover that upon graduation the market had cooled significantly. That’s certainly the case for many recent graduates today. For example, thousands of law school graduates are unemployed and stuck with large student loan debts (average debt for law students was $68,827 for public schools and $106,000 for private schools). They are finding the job market challenging because 15,000 attorney and legal-staff jobs at large firms have vanquished since 2008.
To accommodate the demand, employers are increasingly embracing alternative work models, including hiring independent contractors to fulfill roles previously occupied by traditional employees, shifting to result-oriented work environments (get paid for results instead of the time that you put in), and creating “lower-level” positions that strip away the pay and prestige enjoyed by your colleagues. Whereas many before you got nice jobs immediately after completing school, you are now expected to do unpaid or low-paying internships and grueling postdocs to gain more experience or are simply turned away entirely. For example, to address the glut of attorneys mentioned above, some of the biggest law firms have created a second tier of attorneys, who make half of what traditional legal associates do and will NEVER make partner. Similarly, universities are increasingly hiring PhDs as postdocs or instructors rather than tenure-track faculty. What normal person spends freely when her purchasing power is so limited?
Generation Y is Fearful
Generation Y has certainly endured perhaps more than its fair share of market volatility. No, it was not as bad as the “Great” Depression, but mentally the “Great” Recession has really impacted the buying, saving, and investing habits of Generation Y. As we previously discussed, young people are avoiding investing in record numbers. “Lehman Brothers, GM, AIG, Chrysler, and the collapses or bankruptcies of many other known businesses; a dip in the stock market by 38%; and home prices in the toilet all form the basis for recent resistance to investing. According to a recent study by Wells Fargo, twenty-somethings are more likely to save for retirement in CDs rather than investing in stock than any age group.”
Related Article: Young People Avoiding Investing in Record Numbers
Thus, some have emerged from the “Great” Recession decidedly more frugal and risk adverse. This occurs after significant economic downturns. Generation Y reasonably has trepidation with parting with its money. They distrust a system that has seemingly failed many of them.
Businesses criticizing Generation Y need to place themselves in Generation Y’s shoes instead of trying to place Generation Y into theirs. Everything does not revolve around their next quarter or their brand. If you build it, they will come” is not a self-sustaining business model. Many members of Generation Y are trying to reclaim some normalcy in their finances, make names for themselves professionally, and eschew unnecessary expenses until they work within their budgets. The last thing they need is for entitled businesses shaking their sanctimonious fingers at them saying that their frugality is hurting the economy. Get a grip, and build businesses that aren’t dependent on the whims of those who are least likely able to afford goods and services. Don’t blame young consumers for businesses’ lack of innovation, desirability, or wow.
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Image Credit: Nisha A
1By comparison, the average American household had a 10% increase in net worth during the same time.