how young people spend their money

Their sheer numbers are formidable. About 125 million people between the ages of ten (who will become consumers in the next few years) and 34 live in the European Union. Total annual spending by US households led by Gen-Z and Millennials is set to reach $2.7 trillion in 2021, accounting for nearly 30% of the total. Although they are the lowest per capita spending group today, by 2026 American Gen-Z (those born between 1997 and 2012) could make up the majority of the country’s shoppers.

A good place to start analyzing the psyche of the young consumer is to consider the economy that shaped them. On the older end of the scale, today’s 30-somethings arrived in the middle of the 2007–09 global financial crisis and ensuing recession. His younger peers had a somewhat higher fortune, starting their careers in years when tightening labor markets led to increased wages. Until, that is, the Covid-19 pandemic threw many of their lives into disarray.

These two major shocks, the kind that their parents were mostly spared in a more benign economic era between the mid-1990s and 2000s, have fueled pessimism among the young people who experienced them. A study by McKinsey, a consultancy, published in 2022 found that a quarter of Gen-Z doubted they would be able to afford to retire. Less than half believed they would ever own a home.

Uncertainty about the future may encourage impulsive spending of resources that are limited in the present. The youth were more disrupted by Covid than other generations and are now enjoying the rebound. According to McKinsey, American Millennials (those born between the late 1980s and 1990s) will spend 17% more in the year to March 2022 than a year ago. Despite a short-term rebound from the dark days of the pandemic, their long-term prospects are less good. American millennials and Gen-Z have accumulated less wealth than Gen-X or Boomers at the same age.

Easy access to means of spreading payments may also encourage splashing (see Chart 1). According to another October 2022 McKinsey survey, 45% of Europeans in their teens and early 20s intended to do some sort of brisk walking in the next three months, while 83% of baby boomers born before 1964 did so. Said “no” to wasteful expenditure. Forrester, a market-research firm, found that most users of “buy now, pay later” apps are on either side of 20 years old. Megan Scott, a 20-year-old student from London, speaks for many of her peers by admitting that, when it comes to shopping, she has no restraints—as long as she laughs, the bill comes.

In many ways the shopping habits of young people – like their lives – are defined by the “attention economy”, where it has become too easy to buy stuff without visiting stores. The proliferation of social media means that there are many new ways to attract consumers’ eyeballs. Most young buyers have never known a world without a smartphone. More than two-thirds of 18- to 34-year-old Americans spend four hours or more on their devices each day. With the rise comes an increased expectation of convenience. In the era of Airbnb, Amazon and Uber, young people want their purchases to be completely seamless.

It appears that the tolerance for long delivery times has diminished in the light-speed online world. A study by business-software giant Salesforce found that Gen-Z Americans are the most likely of all age groups to want their groceries delivered within an hour. They are more likely than the rest of the population to use their phones to pay for purchases, according to Forrester, and are turned off when the range of payment methods is limited.

These “always-on shoppers,” as McKinsey names them, often shop one week away for a quick fix on everything from fashion to furniture. They prefer subscriptions, which often favor shared access to products rather than outright ownership. This has given a boost to online-rentals. sites (such as Rent the Runway for Fashion) and streaming services. Investors May Love Netflix But Not Gen-Z; The company is one of the most popular brands among that age group in the US.

The Internet has also changed the way youth discover brands (see Chart 2). Print, billboard or television advertising has given way to social media. Instagram, part of Meta’s empire, and TikTok, a Chinese-owned video-sharing app, are where young people look for inspiration, especially for stuff that matters like fashion, beauty and sports. TikTok’s user-generated videos can propel even small brands to rapid viral fame. Such apps are increasingly adding features that allow users to make purchases without leaving the platform. According to McKinsey, by 2021, six out of ten Americans under the age of 25 will have completed a purchase on a social-media site. Some are following the Chinese model of “social commerce” by combining live-streamed entertainment with the chance to make a purchase.

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For the time being, however, young Western consumers prefer to shop outside of social media, and often scour sites such as Amazon to find bargains from the brands they discover. Spending on subscriptions to Prime, Amazon’s home delivery and entertainment service, outranks only phone bills, food and travel in young people’s shopping baskets, according to a survey by Cowen, an investment bank.

As long as the experience feels personal and ideally integrates the virtual and physical worlds, physical shops don’t take off completely. For example, Nike is successfully targeting young shoppers by allowing them to design their own trainers on their website, pick them up in person after attending an in-store dance class, and then share them on TikTok. Encouraging you to tag brands in reviews. Instagram.

The new world of shopping has allowed young people to take a more informed view of the companies they shop from. The information overload of the attention economy hasn’t dulled the senses of the young. On the contrary, it appears to have made them susceptible, especially to any brand that pretends to be something it is not. Edelman, a public relations firm, found that seven out of ten Gen-Zs in six countries fact-checked advertisements. Citing survey data that show some teens have stopped using certain brands because of their shady ethics, Forrester calls young consumers a “barometer of truth.”

Brands that don’t match the long list of requirements should take a better look. If they don’t get what they want and how they want, the youth are happy to try something new. According to another McKinsey survey for October 2022, nine out of ten Gen-Z and millennial Europeans had changed the way they shopped, where they shopped or the brands they bought in the past three months.

How young the shop is clearly in flux. What they buy is also changing. What older generations considered discretionary, such as fitness and luxury, have become essentials. Self-care is all the rage. In search of clothing that will set them apart, young people are turning to posh brands at a more tender age. According to Bain, a consultancy, the average Gen-Z shopper makes their first luxury purchase when they are 15; Their 30-something counterparts were 19 when they entered the luxury market. Some buy posh items as a hedge, believing that such items can retain value even during tough times. Helpfully, these can now be easily traded on second-hand sales platforms such as Vinted and Vestiaire Collective.

More broadly, younger consumers claim to be more value-driven than previous generations. Research by Forrester suggests that this attitude is even more common among teens and 20-something older counterparts. Some of these values ​​are centered around identity (race, gender, and so on). Others stem from things young people care about, such as climate change. KPMG, an accounting firm, found that the Gen-Z crowd in 16 countries worries more about climate change and natural disasters than any other generation. Young people in emerging markets are still more irritable, according to a survey by Credit Suisse, a bank.

Revealed preferences paint a more nuanced picture. On the one hand, Forrester identifies Patagonia, a premium outdoor-clothing brand with a record for green do-goodness, as a Gen-Z favorite in the wealthy world. Young people are the most likely of all age groups to try and stick with alternative proteins, such as oat milk and plant-based meat substitutes. But not at any cost. Credit Suisse found that globally consumers would pay an average premium of 9% for more eco-friendly grub. Young consumers in the rich world are less willing to pay a premium for these options than their counterparts in emerging markets.

Youth’s appetite for instant gratification is also fueling some apparently uninformed consumer habits. KPMG’s Isabel Allen believes that the younger generation has virtually invented instant commerce. And the feature is cheap because it fails to put a price on all its externalities. The environmental benefits of eating plants instead of meat can quickly be undone if food is delivered in small batches by a courier on a petrol-powered motorbike. Shein, a Chinese clothing retailer that has been bullish on fast fashion, topped surveys in the West as a Gen-Z favorite despite being criticized for wastefulness; Its fashionable clothes are so cheap that they are thrown away once. Then again, young people are contradictory like everyone else—because, like everyone else, they are only human.

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