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Millennials buy the things their parents did — but they're much poorer

Baby boomers seem to have had an advantage in nearly every financial metric compared to millennials, according to a new study from the Federal Reserve.

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  • Millennials earn less, own fewer assets and have more debt than previous generations.
  • The fact that millennials' spending habits differ from previous generations is best explained by lower earnings and less wealth, rather than changing tastes.
  • Some millennials might be too optimistic about their ability to retire early — or on time.

A study published this month from the Federal Reserve suggests the reason millennials are spending money differently compared to previous generations isn't because of their unique tastes, but rather they just don't have much money to spend.

There's a common narrative, according to the study, that says millennials' changing preferences explain why we've seen the recent decline of brick-and-mortar retail stores, home construction and purchases, and new-car sales. But the data indicates that millennials' tastes are pretty much the same as previous generations.

The researchers wrote that "it primarily is the differences in average age and then differences in average income that explain a large and important portion of the consumption wedge between millennials and other cohorts," which included Generation X, baby boomers, the Silent Generation and the Greatest Generation.

In short, millennials show "lower earnings, fewer assets and less wealth" compared to previous generations, and so they're tending to get married and buy cars and homes later in life.

​The "lasting impression" of the Great Recession

One distinguishing factor of millennials' coming-of-age story was the recession of 2007, and the weak labor demand that followed. "Millennials appear to have paid a price for coming of age during the Great Recession," the researchers wrote, noting the recession's subsequent weak labor demand.

They added elsewhere: "The severity of the 2007 Global Financial Crisis and the recession that followed may have left a lasting impression on millennials, who were coming of age at that time, much like the Great Depression left a lasting impression on the Greatest Generation."

That lasting impression might manifest in "attitudes toward saving and spending" that could be "more permanent for millennials than for members of generations that were more established in their careers and lives at that time," the researchers wrote.

The study also notes that millennials have about the same levels of debt as Generation X, though more debt than Baby Boomers. However, millennials also have markedly fewer financial assets than Generation X, even though millennials do seem to be saving for retirement more than other generations did at the same ages, a change that likely "reflects, in part, the replacement over time of defined-benefit retirement pensions with defined-contribution retirement accounts."

​Do Millennials have realistic expectations about retirement?

It's hard to say for sure, but some data suggests that millennials might be a bit delusional about their future economic standing. A 2018 TD Ameritrade survey, for instance, showed that 53 percent of millennials expect to become millionaires, and they expect to retire, on average, by age 56.

That optimism, as I wrote in July, doesn't seem to reflect the reality forecast by data showing that social security won't be able to pay out full benefits by 2034, the group has a collective student loan debt of more than $1 trillion, and young people are now earning relatively less than previous generations — a difference that's likely explained, in part, by more participation, particularly among women, in the workforce.

Still, millennials don't need to worry too much, as long as they're willing to work hard, save and push back retirement by a few years, as Alicia H. Munnell, director of the Center for Retirement Research at Boston College, wrote in a Politico article on millennial retirement.

... My research shows that the vast majority of millennials will be fine if they work to age 70," Munnell wrote. "And although that might sound old, it's historically normal in another sense: Retiring at 70 leaves the ratio of retirement to working years the same as when Social Security was originally introduced.

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