Why Millennials aren’t buying cars or houses & what that means for the economy

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Why Millennials aren’t buying cars or houses & what that means for the economy

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Started 9 months ago by News
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News
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The Cheapest Generation
Why Millennials aren’t buying cars or houses, and what that means for the economy
By DEREK THOMPSON and JORDAN WEISSMANN

In a bid to reverse trends, General Motors has enlisted the youth-brand consultants at MTV Scratch—a corporate cousin of the TV network responsible for Jersey Shore—to give its vehicles some 20-something edge. “I don’t believe that young buyers don’t care about owning a car,” says John McFarland, GM’s 31-year-old manager of global strategic marketing. “We just think nobody truly understands them yet.” Subaru, meanwhile, is betting that it can appeal to the quirky eco-conscious individualism that supposedly characterizes this generation. “We’re trying to get the emotional connection correct,” says Doug O’Reilly, a publicist for Subaru. Ford, for its part, continues to push heavily into social media, hoping to more closely match its marketing efforts to the channels that Millennials use and trust the most.

All of these strategies share a few key assumptions: that demand for cars within the Millennial generation is just waiting to be unlocked; that as the economy slowly recovers, today’s young people will eventually want to buy cars as much as their parents and grandparents did; that a finer-tuned appeal to Millennial values can coax them into dealerships.

Perhaps. But what if these assumptions are simply wrong? What if Millennials’ aversion to car-buying isn’t a temporary side effect of the recession, but part of a permanent generational shift in tastes and spending habits? It’s a question that applies not only to cars, but to several other traditional categories of big spending—most notably, housing. And its answer has large implications for the future shape of the economy—and for the speed of recovery.

READ MORE: http://www.theatlantic.com/magazine/archive/2012/09/the-cheapest-generation/309060/?single_page=true

Posted 9 months ago #
NEOBuckeye
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Interesting article, but I found the comments following it even more striking. It's actually quite amusing to watch the legacy industries made so by the Boomers squirm as they desperately try and figure out how to sell themselves now to the very same younger generations they were all too happy to screw over before.

Cars and housing aren't going away in the foreseeable future, but Millennials aren't going to be enticed by white picket fences and cul-de-sacs in cutesy suburban developments named for songbirds or horses with so much false sincerity. Nor are they interested in driving the latest loaded-up Cadillac SUV as some kind of on-road representation of their status and self-worth. This was never their ideal as it was for the Boomers. Millennials didn't grow up watching idealized suburbia on TV. They instead grew up with 9/11, Columbine and the hyper security-military state, and parents that wanted to coddle and shelter them inside of a sterile existence forever. Their rebellion from all of these things and the institutions that perpetuated them was, and is, inevitable.

Posted 9 months ago #
Walker
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NEOBuckeye said:
Millennials didn't grow up watching idealized suburbia on TV. They instead grew up with 9/11, Columbine and the hyper security-military state, and parents that wanted to coddle and shelter them inside of a sterile existence forever.

I think more importantly, Millennials probably have a very limited history of reference when it comes to homeownership and gasoline prices.

They've probably never paid for gasoline under $2, and therefore maybe don't have the mindset that it will ever get that cheap again. When our grandparents talk about how a bottle of coke used to cost a nickel, we giggle because that sounds silly. I'm sure that the idea of paying 99 cents per gallon for gasoline sounds just as quaint to a 16 year old today.

Similarly, how many millennials have parents or know other adults who are underwater on their mortgages, have faced foreclosures or who have otherwise been burned by the burden of home ownership in the past five years? Probably all of them. If that sort of topic is brought up enough in dinner table discussions, at school, in the news, etc, it eventually starts to sink in that owning a home is a bad deal.

Perhaps things will change as this generation ages. I know I certainly don't think about everything the same way I do now as I did when I was in my early 20s. But I think there's just as likely a chance that these trends will continue to shift and continue to have an even bigger impact in the way our culture at large makes purchasing decisions and how we live.

Posted 9 months ago #
Analogue Kid
Olentangy West
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One of many articles I've seen suggesting as such. I'll note that my Brother in law is 25 and still lives at home. He has a decent job as a manager at a restaurant. Rather than save to move out, he's invested his money in a large boat, a pickup truck to tow it with, expensive fishing equipment, and most recently, an ATV. He lived on his own for a while, but a confluence of temporary factors had him move back in a few years ago and he isn't in any hurry to get out again.

Also I can tell you with commercials like this, car companies are not going to win over many people my age
http://youtu.be/xkljLxddVI4

Posted 9 months ago #
leftovers

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Analogue Kid said:
One of many articles I've seen suggesting as such. I'll note that my Brother in law is 25 and still lives at home. He has a decent job as a manager at a restaurant. Rather than save to move out, he's invested his money in a large boat, a pickup truck to tow it with, expensive fishing equipment, and most recently, an ATV.

My 25 year old brother in law did much the same. He is also collecting expensive miniature (toy) trains (which I thought was mostly the hobby of retired baby boomers). I find it really odd that my wife's parents would allow this. I am not sure what 'millennial values' really are when articles talk about them.

Posted 9 months ago #
JonMyers
HCMC, Vietnam ✈
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Millennials are in an enviable position.

They have yet to accumulate a lot of the big ticket crap like cars and homes, which tie people down.

A lot of people I know regardless of age are abandoning or trying to abandon these big ticket items, and instead opting for a more minimalist lifestyle.

In some ways I don't know that Millennials are that unique. In general, I think there is a movement away from a "stuff centric lifestyle" and more towards an "experience centric lifestyle".

While, I don't think consumerism is going away any time soon, I think people are questioning the wisdom of being trapped by these big ticket items.

Anecdotally, a lot of Millennials I know are more focused on personal pleasure and happiness. When you think about it and reflect, I find people say they're the happiest when they are doing something, when they lose themselves in an experience where they've lost track of time.

Stuff can be a vehicle for happiness, it can be a way of delivering an experience, but just having stuff, especially stuff that served as a status symbol for your parents doesn't make you that happy.

Material products are just possessions. Even really expensive and important purchases are just things that eventually get older or break or are replaced by newer and (usually) better things. The stuff you have is not psychologically a part of you.

Experiences, though, are a part of you. The trips you take, the movies you see, and the things you do create your memories which become a central part of who you are. Even bad experiences can often become stories that you tell, and in that way, they gain value. You do not shed your experiences as easily as you shed your stuff.

It is easier and more satisfying to buy experiences than to buy stuff

Posted 9 months ago #
leftovers

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I would say there is some echewing of more traditional forms of ownership, but I think the money is still being spent and not necessarily on education as the article suggests. I am sure there are plenty of millennials that have gone back to school, but I think that is common in a recession. I wonder if part of it is also a growing peter pan syndrome?

Posted 9 months ago #
Walker
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JonMyers said:
They have yet to accumulate a lot of the big ticket crap like cars and homes, which tie people down.

I'm pretty sure I'm on the older cusp of the Millennial generation at 32, but I do find myself identifying more with certain values there when compared to the Gen-X counterpart that I'm on the younger cusp of.

That being said, we bought our car in cash via Craigslist and are in the process of refinancing down to a 10 year mortgage and will most likely outright own our home before we turn 40.

I don't feel "tied down" by these big ticket items one bit. ;)

Posted 9 months ago #
JonMyers
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Yeah, there is something said for paying in cash.

That said, Columbus is the kind of city (especially if you have kids) where for most people you have to own a car.

Regarding home ownership. Hypothetically (I know you own a business tied to Columbus), if you lost your job and had to go to another city looking for a job I bet you'd feel tied down by owning a home.

They're are a lot of people in that position who see the instability in the job market and want to keep their options open.

Walker said:
I'm pretty sure I'm on the older cusp of the Millennial generation at 32, but I do find myself identifying more with certain values there when compared to the Gen-X counterpart that I'm on the younger cusp of.

That being said, we bought our car in cash via Craigslist and are in the process of refinancing down to a 10 year mortgage and will most likely outright own our home before we turn 40.

I don't feel "tied down" by these big ticket items one bit. ;)

Posted 9 months ago #
hugh59
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Walker said:
I'm pretty sure I'm on the older cusp of the Millennial generation at 32, but I do find myself identifying more with certain values there when compared to the Gen-X counterpart that I'm on the younger cusp of.

That being said, we bought our car in cash via Craigslist and are in the process of refinancing down to a 10 year mortgage and will most likely outright own our home before we turn 40.

I don't feel "tied down" by these big ticket items one bit. ;)

Sort of like me. I am 52 and on the cusp of the baby boomers. I find myself identifying with both the boomers (kids of WW II vets) and their kids.

Posted 9 months ago #
gramarye
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I strongly empathize with this article, to the point where this cultural development is so self-evident to me that I wonder that it's even newsworthy.

My wife and I are nearly the perfect customers for sellers of those big-ticket items. We both have professional degrees, and our credit is essentially spotless. My student loan debt is modest and hers is zero. Sellers of cars and houses would really like to convince us to open our wallets, as would the lenders who finance such purchases.

It's certainly not in the immediate future. We rent and will be renting for at least one more year, since we're renewing the lease this month. Our apartment is about 1000sf, 2bd/1.5ba, but it has a WalkScore of 92, which was the highest I could find in the Akron area when I moved here. We could afford something twice that size in a good suburb or three or four times that size in a more modest one, but I find the prospect extremely off-putting. We may end up doing it anyway within a few years because of the desire for a lawn for the dog (and maybe for other small creatures that may be running around our residence by then), but we're more likely to look for a smaller place with a smaller yard closer in to the urban core (remember, one may not get Manhattan-style density with single-family homes, but there are many vibrant urban neighborhoods that nevertheless have a good selection of single-family homes just off the main drags). The only way I'd see us ending up in a suburb is if she gets a job in another city and we want to split the driving distance.

Speaking of driving, when it comes to cars, people like us are unlikely to be the answer to Ford's problems, either, though I have to admit I've seen some good things about more recent Ford products and would give them a look. For the moment, though, I drive a 2001 Altima and she drives a 1999 Mazda 6. They're both a little dated and certainly won't emerge as classics on the other end of datedhood, but they go from Point A to Point B, and that's all we really want them for.

So we fit the theme of that article on the things we aren't really interested in. We also fit the theme of that article on the things we do buy. Our little apartment nevertheless has two smartphones, two iPads, two Kindles, and a quad-core computer with two graphics-chip slots on the motherboard and two large monitors. We both have bicycles that are a cut above what you'll find at Wal-Mart, Target, or Dick's. And we've recently gotten back from Niagara Falls, Manhattan, and Cape Cod and we've got trips to Chicago, France, India, and Australia in various degrees of tentatively planned.

As a partial sidenote, one category of item that the article didn't mention but which might fit under JonMyers' hybrid above of "stuff that delivers an experience" is designer clothes. I'd actually be interested in knowing if the higher-end fashion brands and retailers are experiencing the same problems as the housing and auto industries with younger buyers. Many of the same people who I shake my head at when I learn that they spent $40,000 on a car shake their heads at me when they learn that I'll sometimes drop $150+ on a pair of jeans or $500+ on a cashmere sweater. Anecdotally, my own acquaintances are a mixed bag. And, of course, the stereotypical Millennial still living at home in his parents' basement playing WoW all day probably isn't overly interested in Zegna or Theory. Overall, luxury retailers have been doing reasonably well, but I'd be specifically curious to know how they've been doing among younger demographics compared to how they did in the same demographics ten years ago.

Posted 9 months ago #
tdziemia
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As with many such stories, there is a bit of "statistical innumeracy" here. The article states
"In 2010, adults between the ages of 21 and 34 bought just 27 percent of all new vehicles sold in America, down from the peak of 38 percent in 1985"

That's a meaningless statistic, because there is a lower percentage of 21-34 year olds in the population in 2010 (20.6% according to the census) as compared to 1985 (26.5%) when 21-34 year olds were in the baby boom demographic. So, OF COURSE they are buying a lower percentage of the cars.

The meaningful statistic would have been number of cars bought per thousand people in this age group. But that takes more ink to write :-)

Might sound like picking nits, but if you're going to back up your thesis with statistics it's not a bad idea to use the right statistic ...

Now I'll read the rest of the article (I hate it when I get derailed by somethign like that in the first or second paragraph).

Posted 9 months ago #
jimbach
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hugh59 said:
Sort of like me. I am 52 and on the cusp of the baby boomers. I find myself identifying with both the boomers (kids of WW II vets) and their kids.

I'm 49, Hugh. We're boomers. Late boomers, to be sure (the boom lasted from '46-'64). Another term I've heard for people of our (sub)generation is "Space-Agers." Our formative experience was not the Cuban Missile Crisis but Neil Armstrong walking on the moon.

Posted 9 months ago #
News
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Here's One Way Business Could Cater to Freaked-Out Millennials
DAVE BURDICK
August 29, 2012

It's ok to admit that the last few years have freaked some of us out. Overall, we're all spending less money and in some cases, buying less stuff. Economist and journalist Michael Mandel, writing at the Atlantic, suggests that in the case of Millennials, it's because of a change in mentality: People are increasingly thinking of themselves as "microbusinesses" and are more concerned with risk and uncertainty than in the past. And how do you sell a spooked twenty- or thirtysomething a house?

READ MORE: http://www.good.is/post/here-s-one-way-business-could-cater-to-freaked-out-millennials/

Posted 9 months ago #
drew

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I'm going to guess that part of what's going on has less to do with taking on the responsibility of owning a house or car, and more to do with the means of acquisition. There's a lot of shadiness that stands between the prospective purchaser and the purchase - namely salesmen, realtors, banks, and insurance companies.

Compare that list to who took it on the chin in 2008 (and probably wouldn't exist anymore without bailouts), and you might be persuaded that a reluctance to deal with such unnecessary complications is not only understandable but perhaps even wise. There's a lot that's still wrong with banking in particular.

And now, I suspect, you've got a generation that is avoiding them like a bad part of town.

Posted 9 months ago #
derm
Grandview
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This is an interesting article to me. I follow Harry Dent a bit, he is sort of an economist, more of a researcher of trends and cycles.

The newest generation really has only known the market as volatile so they invest less. Student loan burden is extraordinary so that takes over a ton of the paycheck. Houses have gone down in value lately not up so that factors into ownership thoughts.

Around here I am an old man of 44. I remember when my financial advisor stated that there was never a down year in any ten year period of the S&P 500 and when financial retirement predictions stated you could expect 7%, then 6 then 5 then 4 then 3......per year. Now there is no prediction.

According to Harry we are now at the cusp of many cycles ending at the same time. But never in history have they ended with so much debt in the world. I do not envy a twenty something going out into the world right now. I have read that nearly 50% of twenty somethings, even with degrees are making ten bucks an hour or less with no benefits. No wonder they look at all the big ticket purchasing and wonder. The major purchasing power of the Boomers is almost done. Who is going to buy all the stuff going forward that drives 75% of our GDP?

Posted 9 months ago #
JonMyers
HCMC, Vietnam ✈
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Gram, generally I fit the theme of the article as well, and I'm almost 40 years old. My most valuable personal possession is the i7 Macbook I'm typing this on. My next valuable possession is a pair of Barker Black lace-ups, which Saigon has put a beating on, and have now seen better days. :(

That leads me into another point about stuff though, and that point is quality over quantity.

There are some people who will always prefer a large quantity of cheap stuff versus a small quantity of high-quality stuff. I fall into the few things of high-quality category.

I don't trigger that shopping dopamine release very often, but when I do, I take it seriously.

I think some in the quantity category enjoy that shopping dopamine rush so much that they seek to trigger that often. Then it's dulled, and you have to buy more and more stuff to get the same rush.

Anyhow on this point, it's hard for me to size up where Millennials stand, especially on high-end fashion.

I think it's still a smaller niche amongst that generation, but I do see a lot of Millennials buying one or two signature high-end pieces of fashion, and mixing that with thrift, and the usual throw-away fast fashion.

Also, with the proliferation of discounting sites like Fab and Gilt, the barrier to entry is a lot lower.

An interesting place to look for clues might be Pinterest. I see boards, and boards of high-end shoes, dresses, shirts, and so on.

Lastly, I'll take the total cost of ownership of a fancy pair of shoes any day over the TCO of a house or car. I know a lot of people feel the same way.

gramarye said:
So we fit the theme of that article on the things we aren't really interested in. We also fit the theme of that article on the things we do buy. Our little apartment nevertheless has two smartphones, two iPads, two Kindles, and a quad-core computer with two graphics-chip slots on the motherboard and two large monitors. We both have bicycles that are a cut above what you'll find at Wal-Mart, Target, or Dick's. And we've recently gotten back from Niagara Falls, Manhattan, and Cape Cod and we've got trips to Chicago, France, India, and Australia in various degrees of tentatively planned.

As a partial sidenote, one category of item that the article didn't mention but which might fit under JonMyers' hybrid above of "stuff that delivers an experience" is designer clothes. I'd actually be interested in knowing if the higher-end fashion brands and retailers are experiencing the same problems as the housing and auto industries with younger buyers. Many of the same people who I shake my head at when I learn that they spent $40,000 on a car shake their heads at me when they learn that I'll sometimes drop $150+ on a pair of jeans or $500+ on a cashmere sweater. Anecdotally, my own acquaintances are a mixed bag. And, of course, the stereotypical Millennial still living at home in his parents' basement playing WoW all day probably isn't overly interested in Zegna or Theory. Overall, luxury retailers have been doing reasonably well, but I'd be specifically curious to know how they've been doing among younger demographics compared to how they did in the same demographics ten years ago.

Posted 9 months ago #
CbusIslander
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I don't think the Millennial generation are avoiding big ticket items because of cultural issues. They have had 2 recessions, double the student dept, and a crashing housing market and incomes hasn't matched inflation for 30 years. When they approach their 30s and marriage and family comes along those big items will come. With smaller family sizes and the needs of larger homes will be less desired but homes will be desired. New home sales are already rising and car sales haven't been that bad this past year. In summary it is too early to label a generation till it reaches the 40s to see any pattern.

Posted 9 months ago #
gramarye
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CbusIslander said:
I don't think the Millennial generation are avoiding big ticket items because of cultural issues. They have had 2 recessions, double the student dept, and a crashing housing market and incomes hasn't matched inflation for 30 years. When they approach their 30s and marriage and family comes along those big items will come. With smaller family sizes and the needs of larger homes will be less desired but homes will be desired. New home sales are already rising and car sales haven't been that bad this past year. In summary it is too early to label a generation till it reaches the 40s to see any pattern.

I'm not convinced that the current uptick in the housing market is the start of a sustained trend, to put it mildly. I'm not alone, either:

http://www.realclearmarkets.com/articles/2012/08/30/dont_believe_the_near-term_data_weve_not_reached_a_housing_bottom_99849.html

Don't Believe the Near-Term Data, We've Not Reached a Housing Bottom

The fact is that the same short-sightedness that led these sun-is-shining pundits to miss the dangers of the housing bubble the first time around, is causing them to wax ecstatic now that housing has allegedly bottomed out. However, they are focusing on short-term data and ignoring long-term trends, which tell a very different story.

It is true that all 20 cities that are tracked by the S&P/Case-Shiller index, a widely recognized measure of housing prices, saw home values increase in June by an average of 2.3 percent. The National Association of Realtors also reports that existing home sales in July grew 9.4 percent year-over-year. And Census Bureau data shows new home sales jumped an eye popping 26 percent in July from the previous year's numbers.

But such short-term increases have happened before, without leading to a full-blown housing recovery.

For instance, the same Case-Shiller index saw increases from May 2009 to May 2010, only to resume its previous free fall with a vengeance. This period too was hailed as the bottoming out of the housing market. But the optimists failed to account for the effects of the First-Time Homebuyers Tax Credit that gave up to $8,000 to households as incentive to buy a home, pulling demand from the future into the present. Once that credit expired in mid-2010, prices began to fall again past the previous low.

This time around the cause of the uptick is that there were fewer foreclosures being processed over the past year which, thanks in part to the robo-signing scandal, has effectively taken existing housing supply off the market. But millions of these delinquent properties will be going through foreclosure and be coming on the market at some point, reversing the price trend currently enjoyed.

*********

Also, while you're probably correct that many Millennials will want homes, that doesn't necessarily mean that they're going to want to own those homes. As the article phrased it, and I think accurately, Millennials (and many Gen Xers who think like them) are prioritizing access over ownership. Thus far, in the real estate world, the rental market has largely been limited to apartments, with some small houses (often in undesirable areas, at least outside the major coastal cities) thrown into the mix. I could see that changing, though, with a larger share of the rental market becoming single-family homes a notch or two above the current rental market median in quality.

Posted 9 months ago #
Analogue Kid
Olentangy West
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gramarye said:
I'm not convinced that the current uptick in the housing market is the start of a sustained trend, to put it mildly. I'm not alone, either:

http://www.realclearmarkets.com/articles/2012/08/30/dont_believe_the_near-term_data_weve_not_reached_a_housing_bottom_99849.html

Don't Believe the Near-Term Data, We've Not Reached a Housing Bottom

[i]The fact is that the same short-sightedness that led these sun-is-shining pundits to miss the dangers of the housing bubble the first time around, is causing them to wax ecstatic now that housing has allegedly bottomed out. However, they are focusing on short-term data and ignoring long-term trends, which tell a very different story.

Good article, but there are some nuances. Areas that have high numbers of owner occupied homes and few foreclosures are not likely to get much cheaper. Where I live, there have only been 4 foreclosures in a neighborhood of >600 houses since 2008. Prices are not likely to go down, because the average days on market is ~30 and people generally aren't getting big discounts.

This is even more true in places like Grandview due to extremely limited housing stock, which I think is going to get crazy expensive in the next decade (it's already seen more than a complete recovery from the crash).

However if I lived on the edge of a cornfield in a 2000 or newer development, I'd be very very worried about my long term prospects if I owned a house there. It's areas like Galloway and Groveport that are really going to get hit in terms of value loss, even moreso than today.

Posted 9 months ago #