Decrease in Spending from America’s Young Promises Future Economic Crisis
Demographics. Unless you’re a statistician, the topic is as exciting as a Green Party stump speech. But it matters. Today’s young people spend significantly less of their income in the real economy—and their numbers are growing. This acts as a permanent headwind to economic growth and assures economic crisis in the not-too-distant future.
That’s because the sheer volume of young people—the so-called Generation Xers and Generation Yers—comprise a rapidly growing slice of the population. As we can glean from the table below, in 2010, people aged 45 and older comprised six of the top 10 most common ages groups. By 2016, it was down to only two. This is graphic evidence that America’s young will exert a greater proportion of economic output going forward.
Advertisement
And that might not be a good thing. Why? Because young people spend far less of their income than those a generation or two earlier.
Also Read:
“Economic Crash 2017” and How Next Financial Crisis Could Be Worse than 2008
5 Signs of a U.S. Economic Collapse in 2017
According to Toronto-Dominion Bank (NYSE:TD), even though millennials make more discretionary purchases than older people, they spend less money than the average consumer. After accounting for a basket of spending inputs, Generation Xers spent 23% less than baby boomers, while millennials spent 27% less. (Source: “TD Bank Consumer Spending Index Finds Millennials Enjoy a Life on the Go, Without Breaking the Bank,” TD Bank, May 11, 2016.)
| Population: Most Common Ages by Year | ||
|
2010 |
2016 |
|
| 1 | 50 |
25 |
|
2 |
49 |
26 |
| 3 | 20 |
24 |
|
4 |
19 |
23 |
| 5 | 47 |
27 |
|
6 |
46 |
22 |
| 7 | 48 |
55 |
|
8 |
51 |
28 |
| 9 | 18 |
21 |
|
10 |
52 |
55 |
(Source: U.S. Demographics: The Millennials Take Over, Calculated Risk, June 22, 2017.)
That’s a significant problem when you’re talking about tens of millions of people in each category. Of course, with each passing day, the younger generation becomes an increasing portion of total consumer spending, worsening the problem. It’s a slow-moving demographic and economic crisis with no clear solution.
Simply put, unless attitudes significantly change among America’s youth, the free-wheeling days of carefree consumer spending are over. America’s young are carrying the cross of stagnant wages and higher debt loads. Both limit the amount of discretionary income available to spend.
This is leading to changes in spending patterns. America’s youth aren’t shopping less by volume; in fact, they’re shopping more. They aren’t boycotting the malls or shunning consumerism. According to TD’s metrics, discretionary purchases are up (see above).
But what they’re clearly doing is spending less on the items they do consume. For example, millennials eat out on average 13 times per month, compared to just five times for baby boomers. Yet, millennials spend just $103.00 per month versus $139.00 for boomers. (Source: “Why ARE Young People Spending Less Than Other Generations?,” Glamour, May 16, 2016.)
Multiply this example to a thousand other ones, and soon you’re talking about real money. Whether America’s young are simply content with living within their means, disavow the excesses of their parents, or are simply broke—the spending slowdown is real.
It makes us wonder whether future investors will spend less money on stocks, too.
Boosting Consumption Proving Difficult
The most powerful economic minds in America are constantly looking for ways to boost consumption. Whether that’s the Fed Reserve Chairperson or CEO of a huge multinational corporation, lack of consumption growth is causing mature economies to fail.
The Fed has been trying for eight years to boost growth through ultra-low rates to meet inflation and growth targets. It’s mostly failed. It’s not like people don’t want more or better stuff, but there’s a limit on how much one can borrow. If I only make “X” amount of money and my real wage hasn’t risen in a decade, I can simply only take on “X” amount of debt. Short of banks paying the consumer interest to borrow (which amazingly, does happen in some situations), debt saturation will always limit growth.
Take the $1.4 trillion student loan debacle as a prime example. That number is $620.0 billion more than total U.S. credit card debt, and works out to $37,172 for each 2016 graduate. (Source: “A Look at the Shocking Student Loan Debt Statistics for 2017,” Student Loan Hero, May 17, 2017.)
So already, so many of America’s young are saddled with significant debt even before they’ve earned their first entry-level paycheck. Is it any wonder why they’ve become so thrifty?
Call it adaptation, call it survival instincts. But the fact remains, with wage growth consistently lagging behind real inflation; with younger generations saddled with high student debt; with workplace automation threatening to pare back job growth, we doubt young people will carry the growth torch. The most “spend-sational” generation has come and gone. It’s not coming back.
Thus, the Federal Reserve and corporate America have an impossible task. How do you boost consumption when a growing army of youth guard the purse strings? Lower credit standards, cheap credit, and financization of the economy have already been tried. It worked great while it lasted, but that growth engine is dead.
There are no easy solutions. And with increasingly fewer “spend generation” folks able to prop up a debt-riddled construct, future economic crisis is assured.
