How young people spend their money

The young have always caused perplexity in their elders.

Thomas Osborne
Thomas Osborne
30 January 2023 Monday 22:38
16 Reads
How young people spend their money

The young have always caused perplexity in their elders. Today's youth are no different; in fact, they are puzzling. They have little money and expensive tastes. They value comfort and some social awareness. They want their shopping to be both easy and personal. They crave the authentic and are constantly immersed in a surrogate digital world. As they start to spend seriously, brands are trying to understand what they want and how they buy these walking paradoxes. The answers will define the next era of consumerism.

The absolute figures are formidable. In the European Union, there are almost 125 million people between the ages of 10 (who will become consumers in the coming years) and 34 years. In the United States there are another 110 million members of Generation Z and millennials, a third of the population. Total annual spending by American Gen Z and millennial-headed households reached $2.7 trillion in 2021, around 30% of the total. Although today they are the lowest spending group per capita, by 2026 Gen Z Americans (those born between 1997 and 2012) could make up the majority of shoppers in the country.

A good starting point for dissecting the psyche of young consumers is to consider the economics that have shaped them. At the high end of the age scale, today's thirtysomethings came of age in the midst of the 2007-2009 global financial crisis and subsequent recession. His younger contemporaries were a bit luckier, starting their careers in years when tighter job markets had pushed up wages. Or, rather, they had better luck until the covid-19 pandemic upended the lives of many.

Those two great shocks, shocks of a kind largely spared by their parents in the milder economic times of the 1990s and mid-2000s, have fostered pessimism among the young people who lived through them. According to a study by the consulting firm McKinsey published in 2022, a quarter of those belonging to generation Z doubted that they would be able to retire. Less than half believed they could own a home.

Perhaps uncertainty about the future is currently encouraging impulsive spending of limited resources. It was the young who were more affected than other generations by the crisis and are now enjoying the recovery. According to McKinsey, US millennials (born between 1980 and the late 1990s) spent 17% more in the year to March 2022 than the year before. Despite the short-term rebound after the dark days of the pandemic, its long-term prospects are not so good. Millennial and Gen Z Americans have accumulated less wealth than Gen Xers or boomers before them at the same age.

Ease of access to the means to extend payments may also encourage waste. According to another McKinsey survey from October 2022, 45% of European teens and 20-somethings intended to make some big expense in the next three months, while 83% of baby boomers (born before 1964) responded that “ no” to such waste. Forrester, a market research firm, found that most users of “buy now, pay later” apps still have several years to go before reaching their twenties. Megan Scott, a 20-year-old London student, speaks for many of her peers when she admits that, when she goes shopping, she can't stop…until the bill arrives, she chuckles.

In many ways, young people's shopping habits are defined - like their lives - by the “attention economy”, in which buying items is much easier without having to go to the store. The proliferation of social networks has led to the emergence of many new ways to attract the eye of consumers. Most young shoppers have never known a world without smartphones. More than two-thirds of Americans ages 18-34 spend four or more hours a day looking at their devices. Growing up in the age of Airbnb, Amazon and Uber comes with higher expectations of comfort. Young people want their purchases to be totally hassle free.

The online world of lightning speed also seems to have lowered tolerance for long delivery times. According to a study by business software giant Salesforce, Gen Z Americans are the age group most likely to receive groceries in less than an hour. According to Forrester, they are more likely than the rest of the population to use phones to pay for purchases, and are deterred when the choice of payment methods is limited.

These “always-on shoppers,” as McKinsey has dubbed them, often shy away from the weekly shopper that seeks quick fixes for everything from fashion to furniture. They favor subscriptions, often with a preference for shared access to products over full ownership. That has boosted online rental sites (like Rent the Runway, for fashion) and streaming services. Investors may have fallen out of love with Netflix, but Gen Z hasn't; In the United States, the company continues to be one of the most popular brands among this age group.

The Internet has also changed the way young people discover brands. Print advertising, billboards or television have given way to social networks. Instagram, which is part of Meta's empire, and TikTok, a Chinese-owned video-sharing app, are where young people go for inspiration; especially for products where appearance matters, such as fashion, beauty and sportswear. Videos created by tiktokers are capable of launching brands that are very small to rapid viral fame. Those apps are adding more and more features that allow users to shop without leaving the platform. According to McKinsey, six out of ten Americans under the age of 25 made a purchase on a social network in 2021. Some of them follow the Chinese “social commerce” model, which combines streaming entertainment with the ability to shop.

For now, however, young Western consumers prefer to shop off social media and often look to sites like Amazon for bargains on brands they have discovered. According to a survey by investment bank Cowen, spending on subscriptions to Prime, Amazon's home delivery and entertainment service, is second only to phone bills, food and travel in the youth shopping basket.

Physical stores are not entirely avoided, as long as the experience is personal and, ideally, integrates the virtual and physical worlds. Nike, for example, successfully targets young shoppers: allowing them to design their own shoes via the website, picking them up in person after attending a dance class at the store, and then encouraging them to tag the brand in a review. on TikTok or Instagram.

The new world of shopping has also allowed young people to have a more informed view of the companies they buy from. The information overload of the attention economy has not dulled the senses of young people. On the contrary, it seems to have made them hypersensitive; and, especially, to any brand that pretends to be something that it is not. Edelman, a public relations firm, has found that seven out of ten young people in six countries check the claims in ads. Citing survey data showing that some teens have stopped using certain brands because of dubious ethics, Forrester has begun calling these young consumers "truth barometers."

Brands that don't meet the long list of requirements had better be careful. If they don't get what they want and the way they want it, young people have no qualms about trying something new. According to another McKinsey survey from October 2022, nine out of ten European Gen Zs and millennials had changed the way they shop, where they shop or the brands they shop for in the previous three months.

It is clear that the way young people shop is constantly changing. It also changes what they buy. What older generations considered discretionary, such as wellness and luxury, have become essential. Personal care is in fashion. Hunting for clothes that set them apart, young people are turning to stylish brands at an ever younger age. According to consulting firm Bain, the average Gen Z shopper makes their first luxury purchase at age 15; His 30-something counterparts were 19 when they entered the luxury market. Some buy luxury items for protection, believing that they will hold their value in difficult times. Fortunately, they can now be easily traded on pre-owned platforms like Vinted and Vestiaire Collective.

More generally, young consumers say they are more value-based than previous generations. A Forrester study shows that such an attitude is even more common among teens and 20-somethings than their slightly older counterparts. Some of those values ​​revolve around identity (ethnicity, sex, etc.). Others arise from issues that concern young people, such as climate change. According to the auditing company KPMG, young people in 16 countries care more about climate change and natural disasters than any other generation. According to a survey by Credit Suisse bank, young people in emerging markets show even greater concern.

Revealed preferences paint a more nuanced picture. On the one hand, Forrester has identified Patagonia, a high-end outdoor clothing brand with a track record of good green practices, as a favorite of Gen Z in the rich world. Young people are the most likely of all age groups to try—and continue to consume—alternative proteins like oat milk and plant-based meat. But not at any price. Credit Suisse found that, on average, global consumers would pay 9% more for more environmentally friendly food. Young consumers in the rich world are less willing to pay more for such alternatives than their emerging market counterparts.

Young people's appetite for instant gratification is also fueling some consumption habits that are clearly not green. The younger generation has practically invented fast trading, observes Isabelle Allen of KPMG. And that comfort is affordable because it does not take into account all its externalities. The environmental advantages of eating plants instead of meat quickly disappear if the meals are delivered by a courier on a gasoline motorbike, and if they are delivered in small quantities. Shein, a Chinese clothing retailer that is the fastest in fast fashion, tops polls as a darling of Gen Z in the West, despite being criticized for waste; his fashions are cheap enough to wear once and then throw away. So, like everyone, young people are contradictory; because, like everyone, they are human.

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Translation: Juan Gabriel López Guix