These days, there’s been a lot of buzz about how millennials spend (and save) their money. In the past, consumers were hammered with the concept that spending $5 a day on a favorite latte was a surefire way to end up with paltry savings, leading some consumers tightened their daily spending belts. Millennials have traded yesterday’s lattes for today’s avocado toast. But when it comes to daily spending and how millennials manage their money, things may not be as dreary as some financial commentators believe.
Let’s answer the underlying question first. Is cutting your coffee (or avocado toast) budget really a key ingredient to financial success? The answer is, “absolutely not.” Think about it. If your finances are so dire that a daily caffeine run or a mouthful of creamy, crunchy toast can run you into the poorhouse, you have bigger money problems that deserve attention. I’ve never been a believer that cutting small daily indulgences will lead to a hefty nest egg. Growing your money is much more complex.
Other people don’t agree. Take Australian millionaire and property mogul Tim Gurner. Gurner recently said that avocado toast might be one of the reasons that some young people (i.e., millennials) can’t afford a house. He recently said, “When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each.”
We hear you, Tim, but this first blush assessment doesn’t get to the heart of why millennials aren’t becoming homeowners at the rate of previous generations. Again, the issue is much more complex.
At the heart of the matter is how millennials view their money. Contrary to stereotypes, this generation isn’t living in the wind; millennials are reported as saving a greater percentage of their incomes than boomers, Gen Xers or seniors. According to a survey from Merrill Edge, millennials save 36 percent more than their counterparts, with more than one-third setting aside over 20 percent of their salary per year. They’re just saving for different things, preferring short-term goals to those that are decades away. Rather than socking it away for retirement, this generation is choosing to invest in experiences.
Today’s 18- to 34-year-olds tend to prioritize travel, dining, and their gym memberships over their financial future. The Merrill Edge study found that 81% of millennials were more likely to spend on travel, 65% on dining, and 55% on fitness, than saving for their financial future. According to the report, the “fear-of-missing-out” mentality drives their spending habits.
Simply put, millennials aren’t thinking about retiring as early as possible – they’re focused on living the most fulfilling life possible, on their own terms. Older generations typically followed the script of work, buy a home, marry, have children, and retire. Today, this younger generation has different plans. Less than half prioritize getting married, and even fewer aim to have children.
For millennials, saving and spending is about creating the freedom to do what they want to do, not only now, but also over the course of their life. Millennials save money to live a desired lifestyle, not as a safety net for when they stop working. These young adults seem willing to do whatever it takes to achieve freedom and flexibility, even if it means working for the rest of their lives.