Editor’s note: In the first days of the year, we’re re-running some of our best investing ideas and lessons. Today, we’re sharing how one generation is shaping the world’s economy.
If you want to know where the world economy is headed, in the U.S. and Asia and everywhere else… look no further than the Millennials.
This generation, born between 1980 and 2000, is one of the largest generations in history. In the U.S., 92 million people make up this generation. That’s bigger than both the Baby Boomers (born between 1945 and 1964) at 77 million, and Generation X (born between 1965 and 1979) at 61 million.
The things Millennials choose to spend their money on will decide which industries and markets thrive and which fall behind.
So it’s important to understand a few things about this generation… Here’s a look at U.S. Millennials…
They have less money than previous generations
There’s no denying it, younger U.S. Millennials are making less money than previous generations. In 2000, the mean income of 15- to 24-year-olds made up 69 percent of the total population, according to the Bureau of Labor Statistics. But in 2012, the mean income of 15- to 24-year-olds made up just 64 percent of the total population.
And while Millennials are earning less, they have more debt than previous generations. The mean student loan balance for 25-years-olds grew from US$10,649 in 2003 to a whopping US$20,926 in 2013, according to the Federal Reserve.
Because Millennials have less money to spend and more debt, they’re putting off a lot of big purchases.
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They’re not buying homes right now
It’s no secret that so far, most Millennials have avoided entering the housing market.
According to Goldman Sachs Global Investment Research, in 2010, 29.9 percent of 13- to 34-year-olds were living at home with their parents. That’s compared to 26.8 percent in 1990.
And of the Millennials that do leave the nest, most are choosing to rent instead of buy. In 2005, 52 percent of 24- to 34-year-olds rented, compared to 60 percent in 2013, according to Goldman Sachs.
So more Millennials are choosing to live at home or rent than previous generations – for now.
But it’s possible we could see a surge of home sales from this generation.
You see, in the U.S. peak home-buying years are between 25 and 45 years old. Many Millennials are just now entering this phase. And 93 percent of Millennials aged 18-34 say they plan to buy a home at some point, according to Trulia.
So it’s possible we could see more Millennials enter the housing market. And given the generation’s huge size, we could see a surge in home sales in the years to come.
They’re putting off families and marriage
Buying homes isn’t the only thing Millennials have put off.
In 1969, 56 percent of 18 to 31-year-olds were married and living in their own household. But in 2012, that number was just 23 percent, according to Pew Research Center.
According to Goldman Sachs, the median marriage age in the U.S. today is 30 years old. That’s compared to 23 years old in the 1970s.
Millennials are also waiting longer to have children.
The following chart shows the percent of women having children by age in different decades. As you can see, in the 1970s, 12.9 percent of women aged 25 were having children. But in the 2010s, just 7.9 percent of women aged 25 are having children. That’s compared to 6 percent of women aged 35 having children in the 2010s, while just 3.6 percent of 35-year-old women were having children in the 1970s.
So as Millennials grow older, we could see them increasingly getting married and having children.
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They care about health and wellness
While Millennials aren’t spending money on luxury goods or big items like houses, they’re growing increasingly concerned – and are willing to spend – on their health.
For example, according to monitoringthefuture.org, 83 percent of U.S. 12th graders (that is, the final year of secondary school) disapproved of people aged 18 or older smoking a pack or more of cigarettes a day. That’s compared to 69 percent who disapproved in 1998.
Millennials in the Asia region are in much better financial shape…
While U.S. Millennials have less than previous generations, the opposite is true in Asia.
Millennial wealth in China is projected to more than double between 2015 and 2020, according to International Investment. By 2020, Millennial wealth in China could reach US$24 trillion – more than the entire projected U.S. GDP that year (at US$22 trillion).
So a lot of future consumer spending will come from China, India and the rest of Asia.
Chinese consumption alone is set to rise by 55 percent – to reach US$6.5 trillion – by 2020. And consumption in India is set to grow to US$4 trillion by 2025.
By 2030, Asia as a whole will account for nearly 60 percent of global middle-class consumption. To put that in perspective: In 2010, North America and Europe accounted for about 60 percent of the world’s middle-class consumption.
Millennials will affect the world economy
So in the years ahead, we could see a surge of spending in the U.S. on housing and families… while we continue to see health and wealth spending. And the majority of consumer spending will be coming from Asian Millennials.
In short, this is the generation to keep your eye on. They’ll be shaping the world’s economy in the years ahead.
Publisher, Stansberry Pacific Research