Millennials With Money? Find Out Where They Live and How They Spend
A conventional image forming for young adults under age 35, known as Gen Y or the millennials, is that they are up to their ears in student debt; either unemployed or working at unpaid internships or part-time jobs that don't use their expensive college degrees; living in their parents' basements, delaying both marriage and buying their first homes; and generally besieged on all sides by the tough economic hand they've been dealt. However, there is one subset of this group more likely to rise above this bleak portrait: those living in households making more than $100,000 a year in annual income.
The affluent Gen Yers are the future consumers of luxury goods and services, and they differ in important ways from their baby boomer and Gen X parents, who experienced very different economic cues during their formative years. During the boom times of the early years of the past decade, luxury marketers targeted "mass affluents," those aspirational luxury consumers who were feeling flush thanks to the rising value of their biggest asset -- their homes -- and who didn't mind using credit cards to purchase the signifiers of a wealthy life. Luxury marketers rolled out more accessible offerings in order to reach this wider market. But after the housing bubble burst, mass affluent consumers reverted to the middle class, and are now behaving and spending in a way that reflects that reality.
While mass affluent consumers -- those with $100,000 or more in annual household income -- were participating significantly in luxury markets in 2005, the disappearance of aspirational luxury consumers means that today's luxury marketers increasingly have to refine their target upward, toward those with $200,000 in household income, or even more.
Ad agency Digitas investigated these Gen Y consumers and their approach to luxury. Building on Digitas' 2011 report, Affluence in America, which looked at all wealthy households, this new report synthesizes data and information from a variety of sources to examine the next generation of luxury consumers. Those sources include the U.S. Census Bureau, the Mendelsohn Affluent Survey, media coverage and interviews with marketers.
The affluent segment of Generation Y, those ages 18 to 34, has the largest current and potential spending for luxury items. Gen Y's spending power is almost $200 billion a year, according to marketing research firm Kelton Research.
"Gen Y is starting to enter the wealth-accumulation phase, and companies that are struggling should look ahead," said Jason Dorsey, chief strategy officer of the Center for Generational Kinetics, a research and consulting firm. "Based on our and other research, by 2017, Gen Y could outspend boomers. As boomers move on, they'll be spending less, but Gen Y is just getting started."
Why should marketers pay attention to the millennials now? They represent the biggest group of consumers to come along since the baby-boom generation, and at 71 million, account for 37% of adult consumers. In the next decade, this group will move through their 20s and early 30s, prime years for establishing households, building careers and starting families. Those living in households with income above $100,000 number 16.6 million already, a sizable target that will likely gain members as its members mature.
The focus on Gen Y has gained urgency due to the post-recession belt tightening that has all income brackets spending more conservatively. The past two years have seen a bit of a "luxury rebound" among those in the very top income brackets, who have fared well because of high-end real estate holding value and growth in the stock market. The Gen Y children of these top-earning households have benefited as well, often by being able to use family assets such as real estate and automobiles that would be out of reach on their salaries alone.
Digitas found that affluent members of Generation Y are strongly driven by expectations of future wealth and the products that accompany that lifestyle -- a trend researchers attribute in part to this group's having grown up in the comfort of a pre-recession economic boom.
"Studies show that among young Americans, materialism is at an all-time high," said Jean Twenge, a professor of psychology at San Diego State University and author of "Generation Me: Why Today's Young Americans Are More Confident, Assertive, Entitled -- and More Miserable Than Ever Before." "It comes from the media's glorification of the rich and famous, yet there is rarely a backstory about how hard those people worked to get there," Ms. Twenge said.
A large portion of wealthy Generation Y that does indulge in luxury buying still lives at home with their parents, and this subset spends between two and four times their own income -- signifying one of the most important trends of affluent Generation Y, and one of the most surprising findings. These affluent millennials are not earning the money they spend, but attaining a wealthy status by way of their parents' assets. If you don't believe it, just spend a few minutes browsing the Tumblr titled Rich Kids of Instagram for the numerous pictures of trips on private planes, pool parties at Hamptons estates, closets full of shoes and hands festooned with jewelry and expensive watches. In contrast, those who have established their own households that earn over $100,000 or more are much more conservative in their spending, but they are on career paths that will likely keep them earning at a level to maintain a wealthy lifestyle.
"It's important not to count out this generation based on their personal income," said Digitas' George Scribner, senior VP-account planning. "Many of the younger affluent Gen Y are grafting their parents' income onto their own."
Currently, this group is influencing their families' spending, but whether this is a lifestyle that they can sustain throughout their own lives remains to be seen. Many have chosen careers that do not put them on track to acquire their own wealth at a level equal to that of their parents. Marketers of luxury goods must now balance catering to these affluent adult children with cultivating those who are building their own wealth and assets as they grow in their careers.____________________________________________________________________
To learn more about the five segments of affluent millennials, order the Ad Age Insights report, "Affluence in America: The Next Generation."