It is hard to overstate just how intensely the Covid situation has affected the World’s financial system. Before March, the stock market enjoyed its longest uninterrupted bull market. Until then, the U.S. enjoyed 11 years without a recession. Then within a month that all changed. We went from having a 50-year low unemployment rate to an all-time high of 14%. What is the COVID effect?
From guest author, Le0 Gutierrez.
Why is this important? The COVID-19 pandemic became a full-blown crisis with millennials at the forefront. Mostly everyone is familiar with the stereotypes when it comes to millennials. They are said to be quick to switch jobs, indebted, needing financial assistance, and still living with their parents. Perhaps most stereotypical, they love to splurge on things like artisanal coffee with toppings that baby boomers have never even heard of.
However, millennials will soon replace Generation X as the dominating group in the labor force. This COVID-19 pandemic is completely changing millennials’ habits towards finance. Many analysts predict they will influence the whole economy for decades to come via a demand for stocks and equal opportunity.
How Are Millennials Wasting Money?
When we say millennials, what we mean are those born between the years 1980-1996. They’re a generation that grew up during the digital age and comfortably enjoy the use and implementation of technology.
When compared to Generation X and baby boomers, millennials have made it clear that they value their entertainment and going out. In fact, the statistics back this up: millennials spend two thirds more on entertainment than the other cohorts. Additionally, their definition of entertainment is changing. According to Eventbrite, roughly ¾ prefer an experience like a concert or a festival over a desirable object.
Millennials and Debt.
Millennials may be one of the most indebted age groups in the country: 63% hold more than $10,000 in student loan debt. This frequently has continued negative effects on homeownership and is often coupled with other forms of debt such as debt accrued from credit card usage.
Debt hasn’t exactly stopped millennials from enjoying their preferred stereotypical luxuries. The stereotype seems to fit the bill as 60% admit that they are willing to spend more than $4 on a single cup of coffee. Almost ¾ of those surveyed (70%) have confirmed they are willing to spend extra to eat at trendy restaurants. Perhaps this next stat can be heavily debated as the overall yearly expense of owning a car could be seen as impractical, but most millennials (over 50%) spend money on taxis and ride-hailing apps comparative to Gen X (29%) and Boomers (15%).
This combination of debt and frivolous spending is detrimental to millennials’ savings. Many report that they have no savings at all and instead live paycheck-to-paycheck. Vast financial weaknesses are often exposed during big economic downturns, and Coronavirus is no exception.
There is a silver lining to this story. The Covid crisis has seemingly knocked some sense into those poised to become the dominant economic driver of the country in the coming years.
How did Coronavirus affect Millennials?
According to the wide-ranging survey by MoneyUnder30, this pandemic created a positive shift in the mindset of millennials. Those who were more interested in spending, may now more than ever shift to saving mode. As per the survey findings, two-thirds (65%) say the lockdown had “a positive effect on their finances.”
In fact, millennials saved the most on barista-brewed coffee and Uber! This is unsurprising considering the intense lockdown of the economy. Data shows that their overall savings rate increased throughout the pandemic. Social distancing facilitated in 40% of millennials saving more than ever before!
Greater Interest in Investing.
Millennials frequently get a bad rep for being the bracket with the lowest percentage of investment holdings on average. Almost half of millennials say their ultimate financial goal is not living paycheck-to-paycheck. Perhaps this goal can be attainable as 61 percent think now is a good time to invest in the stock market. Millennials see this as a route to create passive income and increase their net worth.
New applications and the amount of free information available make it easier than ever to trade and invest. This does not come without its challenges. Platforms must realize that education is first and foremost the most important aspect of investing. Despite the challenges, millennials appear to be more tolerant to the risks of the stock market and are more likely to put forth their stimulus checks on investments.
Why Millennials Are More Optimistic.
Millennials significantly increased their saving rate by such large amounts due to the pandemic. Seemingly social distancing and the lockdown did most of the saving for them.
As a generation that enjoys eating out more than others, the pandemic essentially forced millennials to embrace home cooking and the savings that comes with it. Additionally, many millennials live in densely populated areas where using Uber is more common than owning a car. With much of the economy shut down, there was little to no need for the ride-hailing apps.
Finally, in the new age of the working remotely, millennials remain uniquely positioned for a smoother transition compared to other generations. Millennials welcome the technological aspect with openness. Additionally, they value this newly found work-life balance as an important factor in terms of quality of life. Working from home significantly cuts the cost and time of transportation.
The Long-Term Covid Effect.
It’s no surprise to see millennials adapt to this new situation better than others and ready to embrace changes in spending over the long term.
Thanks to the lockdown, many are trying out new services for the first time. The popularity of services like Zoom video calls, online education classes, meal delivery services, as well as grocery delivery has skyrocketed. These new experiences will likely continue to impact their habits going forward, even once this pandemic is over.
As the impending dominating consumer group, these habitual changes will become a major factor in shaping worldwide economic development for the foreseeable future. One thing is for sure: this pandemic highlighted the loss of potential growth by investing in daily $5 macchiatos.
Thanks again to Leo for another very thoughtful article and perspective. In early June Leo had offered …
What’s your take? Do millennials get it when it comes to money and investing? We’ll see you in the comment section.
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