The New Poor: The Truth About Millennial Spending

Millennials have a reputation for being broke, but just how bad is it?

October 2, 2017
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I have a complicated relationship with money.

Maybe you’re not surprised by that; I am a millennial, after all. Recently, I wrote about how I used to be good with money—because I didn’t have any to spend. I shared that an increase in income actually revealed I had basically no personal finance skills and that I had a long way to go before I could claim to be “good with money.”

The truth is, making some bad financial decisions and having a decent amount of debt actually forced me to buckle down and start teaching myself a thing or two about saving and spending. It also forced me to address the fact that the way I spend my money is heavily influenced by the people around me and the stuff I see online.

Our generation is actually known for being less motivated by money

The other day, for instance, I finally resold a baby product for half of what I spent after only using it once or twice over the course of a year. It was a bassinet for my newborn, but it was virtually useless. I had only bought it because it looked good in the pictures of so many of the moms I follow on Instagram. I’ve felt ashamed of how easily social media influences how I spend my money, but when I realized this wasn’t just my problem, but a problem unique to my entire generation, I actually felt better.

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Knowing that basically everyone my age feels an intense pressure to keep up appearances, both online and in real life, actually gave me a sense power of my choices. I cut back on my spending, I started saving my money and paying off debt, and I started spending less time online.

I also learned a lot about millennial spending and their approach to finances that helped my gain perspective on my own situation and the financial health of the people around me.

Millennials are behind, but it isn’t all their fault.

Before drawing a conclusion about my generation and the state of our finances, I think it is important to be honest about the facts. Many millennials are behind on their financial goals, but it can’t all be blamed on $5 coffees and the iPhone X.

This generation is drowning in student loan debt.

The truth is, our generation is actually known for being less motivated by money and more attracted to jobs that match our personal values, and because of that, we’re not making a whole lot of money.

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“While millennials make up the majority of the workforce in North America, they actually earn 20% less than older generations did at the same stage. This is despite better education. This is likely explained by the majority of job-seeking millennials not being motivated by compensation but rather being treated fairly by their employers. They also prefer working for companies that give back to the respective communities and to the world at large,” explains Josh Zimmelman, the President of Westwood Tax & Consulting and respected voice on personal finance.

This generation is also drowning in student loan debt. According to Harvard IOP, 42 percent of millennials have debt from taking out loans to pay for education.

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In fact, one recent survey from personal finance website Credible revealed that millennials feel so trapped under the weight of their debt, nearly 50 percent of respondents said they’d be willing to give up their right to vote just to have their student loans forgiven.

Millennials are spending under pressure.

Student loans and low incomes seem to hold a lot of the blame for why millennials are so broke, but there is also some weirdness when it comes to how we spend our money. Like me, many members of this generation feel a weird pressure to keep up the appearance that they aren’t actually broke; social media is one major source of this pressure.

I think that spending money that I don’t have will fix [my life] somehow.

“Social media has created a new set of rules,” says Brett Graff, author of Not Buying It: Stop Overspending and Start Raising Happier, Healthier, More Successful Kids. “It used to be that…the style conscious might consider an outfit for and evening and wonder whether the other dinner guests might have seen it previously. Now, once the outfit is displayed on social media, every single person the trend-setter knows has seen it, meaning it’s dead and new outfits are in order.”

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Graff (Image credit: via Washington Hebrew Congregation)

I talked with one millennial, who asked to be kept anonymous, and she admitted she’d made purchases based on what she had seen online on more than one occasion, even when she couldn’t afford it.

“Even though I know that almost everyone only posts the best parts of their lives, I compare ‘the best parts’ of my life and I don’t think they measure up. I think that spending money that I don’t have will fix that somehow,” she tells HealthyWay.

Her admission that her spending is often driven by a quest for fulfillment hit a nerve for me. I often have found myself caught up in comparing my life with what I see online. When I’m feeling my life is a hamster wheel of work, breastfeeding, and diaper changes, it is easy to believe that going out for a fancy dinner, like I saw on a friend’s Instagram the last time I logged on, might bring more excitement to my life. It is easy to get fooled into thinking that a black romper being promoted by a mommy blogger might make me feel like my own person again, not just someone’s mom.

Psychologists call this the hedonistic treadmill, according to Graff. This cycle of trying to find lasting happiness from things has been scientifically proven to provide no more than a “quick jolt” of happy.

“These [purchases] satisfy what psychologists call ‘extrinsic values,’ meaning satisfaction depends on the approval of other people. To enjoy materialistic goods like new clothes, you need the approval of other people. And working towards those goals make us, as humans, less happy than if we were to work toward intrinsic values, which come within us. Such as learning guitar or how to ski or to meet our own goals and get approval from within.”

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According to The Modern Wealth Index, a survey from Koski Research and the Schwab Center for Financial Research that evaluated the wealth-building behaviors of Americans, millennials often know they’re making poor financial choices. When it comes to buying clothes they don’t need, 70 percent fessed up to this habit; 76 percent said they upgrade to the latest technology, like new smartphones. It is easy to wonder if the pressure to keep up appearances are to blame.

It might not be as bad as it seems.

What I found to be most interesting is the evidence that, yes, millennials are struggling financially, but some of that struggle might be sensationalized by mainstream media. For instance, the same Modern Wealth Index that indicated some overspending habits in millennials actually had a lot of positive data about how we are managing our money overall, especially when compared to other generations.

Millennials are just choosing to [splurge] differently than previous generations.

This generation is actually working hard to get on top of their finances, with 34 percent saying they had a written budget—only 21 percent of Generation X said they had a written plan. We’re making progress, too; 39 percent of twenty-somethings and 57 percent of young thirty-somethings saying they were in a better place financially than they were five years ago.

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And, although it might be easy to paint a picture of millennials being a materialistic generation, that doesn’t actually seem to be the case. When it comes to spending their money, millennials would actually rather save it for an experience, according to Meredith Hirt, an insights writer at Cassandra, the leading ongoing study of emerging trends, generational insights, and youth behavior.

It might be true that even our experimental spending is influenced by social media, but it’s not accurate to assume it’s all about just accumulating more stuff.

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“This doesn’t mean they’re not willing to splurge, they’re just choosing to do so differently than previous generations; they’re not saving up for the flashy sports car, the designer handbag, or the sprawling mansion,” Hirt says. “Instead, they’re spending on festivals, wellness retreats, and food and dining.”

What is the truth about millennials spending?

There seems to be two sides to the coin when it comes to millennials and their money. We’re not exactly thriving: The data does suggests there are more millennial families living in poverty and we know for certain more of us are facing a lot of debt.

But are we really a financially wreckless generation who will do anything “for the ‘gram”? That seems to be an oversimplification. The pressure to spend is certainly there; I’ve experienced it myself and have chatted with friends who admitted to having spent money they didn’t have on something they saw online.

But we’re also not completely unaware nor are we immobilized in our efforts to change our relationships with money. In fact, the number of millennials with $10,000 or more saved jumped by five percentage points between 2016 and 2017, according to a GoBankingRates survey.

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Personally, I think it’s worth noting that we’re the first generation to live our lives online. That’s relevant because there appears to be an adjustment period that comes with that, particularly as advancements in our careers lead to higher purchasing power in a world that’s constantly throwing advertisements and aspirational lifestyles in our faces.

Despite being adults, most millennials are still learning what it means to have to use social media for good and how to draw boundaries between our online and offline lives.

Although I’ve felt frustrated, or even ashamed, of my spending habits in the past and the reputation my generation has when it comes to money, I don’t feel that way anymore. My own personal progress, and the data that suggests my experience is reflective of the rest of the generation, seems to argue that millennials aren’t a financially inept generation destined for financial ruin. We’re a work in progress, and I’m more than okay with that.

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