Millennials' Spending Preferences: All That Different?

March 12, 2019

photograph of a customer handing a payment card to a smiling merchant at a cafe or juice bar

Millennials are often described in terms of certain behaviors and attitudes. However, findings from recent Federal Reserve reports suggest that in some ways, this generation—which includes those born from the early 1980s to the mid-1990s—may not be that much different from previous generations, especially when it comes to spending.

According to the Federal Reserve Cash Product Office's 2018 report on the Diary of Consumer Payment Choice, all generations, millennials included, like to use funds on hand when making payments. Feedback from about 2,800 consumers who tracked their own payment behavior in October 2017 shows that cash remains a popular way to pay for goods.

Debit payments gain ground

Even so, the survey found that those who are 25 to 44 years old, a group that includes millennials, didn't use cash as often as other age groups. Respondents 25 to 34 years of age reported they use cash for 23 percent of their transactions, compared with 26 percent for those aged 35 to 44 years old. By contrast, survey participants under 25 and those 45 years and older used cash for 34 percent of purchases, the consumer survey indicated.

Millennials led their older peers in the use of debit payments, with those 25 to 34 years old and those 35 to 44 choosing that form of payment for 32 percent and 31 percent of transactions, respectively. Consumers 45 to 54 years old chose debit 28 percent of the time, and those between the ages of 55 and 64 used debit payments for 23 percent of their transactions, according to the survey.

The amounts of cash that people carried around with them were also observed in the survey, which was conducted by the Federal Reserve Banks of Atlanta, Boston, Richmond, and San Francisco. The data showed that average daily cash holdings tend to rise with age. In 2017, those aged 25 to 34, a group including millennials, had average cash holdings of $35, compared with $48 for those aged 35 to 44, $69 for the 45-to-54 age group, $66 for survey participants 55 to 64 years old, and $101 for those 65 and older (see the chart). Claire Greene, a payments risk expert in the Atlanta Fed's Retail Payments Risk Forum, noted that the differences could pertain to the range of life stages and income levels among survey participants.

Study identified a noteworthy difference

A separate Federal Reserve report published in late 2018 could help explain why millennials' cash holdings and usage trail those of older age groups. An analysis and comparison of the consumption, debt, income, and net worth of various generational groups found that millennials do stand out in one significant way: they are worse off financially than Generation Xers and baby boomers were at their age. (According to Pew Research, Gen Xers were born between 1965 and 1980; baby boomers, between 1946 and 1964.)

The Board of Governors study noted that millennials own fewer assets and have lower incomes than do members of earlier age cohorts. The researchers' analysis found that family income of Gen Xers and baby boomers was 11 percent and 14 percent higher, respectively, than the household income of demographically comparable millennial households after controlling for age, work status, and other factors.

The study found that millennials have lower net worth than earlier generations when they were younger. For example, in 2016, the average net worth of millennial households was roughly $92,000, about 20 percent less than baby boomer households in 1989 and almost 40 percent less than Gen X households in 2001.

Millennials "came of prime age during the Great Recession," when economic growth was contracting, labor markets were weak, and credit was tight, the study noted. "The effects of these unfavorable conditions on labor force attachment and attitudes toward saving and spending may have been more permanent for millennials" than for generations who were more established in their careers at that time, the study added.

The authors also examined consumer spending data and concluded that evidence doesn't show that millennials have "significantly different tastes and preferences" than prior generations when it comes to food, cars, and housing-related items. The study cited data from the Federal Reserve Bank of New York's Consumer Credit Panel indicating that 40 percent of millennials had an automobile loan in 2017, a figure that compares with 36 percent of Gen Xers in 2004.

"Once the full set of demographic and economic controls are taken into account, we see no evidence that the generation-specific tastes and preferences of millennials favor lower levels of consumption than the tastes and preferences of members of other generations," the researchers noted.

photo of Karen Jacobs
Karen Jacobs

Staff writer for Economy Matters

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