The largest segment of the economic growth in the US is from personal consumption. It is important to look at the individuals behind consumption to find clues into buying habits that may impact the economy.
Demographically, the baby boomers are the largest group and most powerful in terms of net worth and wealth. As boomers retire, they will have less income and their spending, or personal consumption, will decrease. Since my generation, the gen-Xers, is much smaller, we will not be able to counter the drop in consumption from boomers. The next largest demographic group is the Millennials. What will be happen to their spending habits?
While gen-Xers, grew up in an environment where there is strong belief in that the future will be better, Millennials may have the belief that the best days of our country are behind us. As such, Millennials are less likely to spend their way into debt as past generations may have. While probably most gen-Xers have credit cards a recent study cited 63% of millennials not owing a credit card.
The Global Economic Analysis blog “Mish Quotes” from “MarketWatch”, states that, “Most holiday shoppers plan to pay in cash. Younger shoppers were especially unlikely to use credit cards; 48% of millennials said they would do most of their shopping with debit cards, and 36% said they preferred cash. Millennials in general tend to avoid credit cards more than previous generations have done; 63% of millennials do not own a single credit card according to a separate Bankrate survey in 2014. They grew up in the Great Recession and saw what happened to their parents. They don’t want to ever be in a situation where they’re in debt. They’re shying away from high-interest loans essentially.”
So while it is good to not plunge into consumer debt, without using credit the millennials will not sustain the consumer spending which so many retailers depend upon. Economists can’t think of a world that is dominated by consumer spending, and subsequently debt. The Christmas season economics news is dominated by spending habits of consumers. Past decades of economic history have shown growth from an increase in the middle class as technology progressed and a more efficient division of labor made goods more affordable. Now the only way to increase prosperity is to spend more. It appears this will not be sustained.
Millennials are also smarting from large student loan debt which tends to decrease their disposable income and alter their spending habits. Younger folks who saw their parents destroyed by debt now, will keep these memories their entire life. Spending attitudes are a key force for consumption. It took two generations for memories of the Great Depression to go away and will take at least a generation for millennials to have their memories of money struggles of their parents to vanish. This will mean less spending on Christmas for millennials.
On the positive side, these new spending habits may cause the next generation to escape the slavery of consumer debt. They may be able to teach their kids how to avoid this debt trap as they rebuild the economy. On a negative side, shopping and spending during this Christmas season, which drives much of the economy will once again suffer.