Despite accusations of frivolous avocado toast purchases, young adults today are spending less on entertainment and food and far more on health care and education than Baby Boomers did at their age, according to data from the Bureau of Labor Statistics.
Between the lines: The money spent on health care and education does not include costs for employer-based health insurance or student debt repayment — median household student debt tripled between 1989 and 2013. Even without those factors, millennials still spend more out of pocket in these areas than Boomers did — especially on education.
The big picture: The rising cost of education in particular is making it harder for young people to save and invest.
"The youngest generation doesn’t seem to be in as good as a position to accumulate wealth because education is so expensive."— Bill Emmons, assistant vice president at the Federal Reserve in St. Louis, told Axios.
- Health care: There is likely a correlation between increased spending on health care and the implementation of the Affordable Care Act, Emmons said. While fewer young people had health insurance before, now a majority of young people are insured — which means more are paying for it.
- Housing: While overall housing expenditures are roughly the same for 30-year-old millennials as they were for Boomers, today's young adults are far more likely to rent than buy.
- Education: Even without debt repayment included, millennials are still spending significantly more on their education. There are apparent links between the decline in home ownership and the dramatic increase in student debt, said Lowell Ricketts, lead analyst for the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis.
What to watch: 2017 saw an uptick in the number of young adults buying homes, but as a result, restaurant sales underperformed, according to Neely Tamminga, CEO and Chief Whiteboard Artist of DISTILL, which advises executives and board members of consumer-based businesses.
- It's too early to call it a trend, but as financially savvy millennials make their adult home purchases, they may begin to cut back on discretionary spending, according to Neely. That could lead to a serious economic impact on some industries in the years ahead.
The three key drivers behind why millennials are spending less frivolously:
- The Great Recession hit while most millennials were in their formative years. They saw their parents lose their jobs, their grandparents lose retirement money and friends lose their homes. "That’s going to leave an indelible mark as they consume in their adult consumption years," Tamminga said. "They’re cautious."
- In some spending categories — such as clothing — the items have gotten significantly cheaper over the years, according to Emmons, due to increased globalization and other factors.
- There are also substantial cultural differences between the 30-year-olds of today and those of 30 years ago. For example, the use of tobacco has significantly decreased overall and among young people over the past several years, according to the Centers for Disease Control and Prevention. And, as both Ricketts and Emmons pointed out, young people also rarely pay for reading materials anymore.