Out with the old, and in with the new. This applies not just to the changing of dominant generations, but also to trends they will dictate via their spending habits.
A new commentary piece by wealth management giant Morgan Stanley examines how passing the mantle of “largest generation” from boomers to millennials is predicted to affect different economic sectors.
One difference will be the type of debt many consumers will be saddled with. While boomers took on mortgages to acquire property, higher educational costs have left millennials with huge student debt. The college education acquired by 61% of millennials will be largely underutilized, however, as they face fewer job openings. The problem is exacerbated by boomers who just don’t want to quit, opting instead to stay in the workforce for longer.
Household formation is another differentiator. As the oldest millennials are deciding to marry later, related categories such as furniture, appliances, and child care are squeezed – though household formation has trended upward from 2011 to 2015. Increasing home prices has also dampened millennials’ desire to start new households, although 89% of current millennials who rent still plan to buy a home eventually.
The historical trend of peak earning, spending, and investing between the ages of 35 and 55 is expected to hold. The first millennials are set to turn 35 this year, which will probably come with increased interest in housing and insurance. “College loans may be swapped for home loans and life insurance as this new generation takes on the responsibility of economic growth,” the piece says.
The sheer size of the older generation, however, means that they should not be written off just yet. The percentage of the population aged 65 and older is expected to increase to 22% by 2046. Boomers also currently control 70% of disposable income due to their accumulated income, which means millennials and boomers will likely serve as twin engines that will drive consumption. Health care spending is also forecast to increase by 1.04% annually all the way through to 2060.
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