Millenial Luxury

The Baby Boomers grew up in a world where luxuries were expensive. A meal out took up close to 7% of a baby boomer’s average weekly income. By the same measure, a coffee from a cafe would take up more than 1% of a Boomers weekly income. Preparing meals at home and making coffee yourself was not a lifestyle choice but a financial necessity.

That was the late 1970s. The world has changed considerably since then. Australia has sold off its industries in favour of a “Big Australia”. Today’s 20 to 30 year olds experience almost the exact opposite world. Luxuries have become cheap. Necessities have become expensive. For Millenials a meal out costs less than 5% of their weekly income. Coffee from a cafe takes up less than half of 1% of that same income. 

Whilst a weekly grocery shop took up 17% of a Baby Boomers weekly pay, it takes up around 25% for Millenials. They don’t eat more than Boomers either. On wages alone, Millennials could buy nearly three times as many cafe coffees as Boomers, but far fewer groceries. Luxuries and necessities prices flipped. 

Few dispute that Baby Boomers and millennials came of age in entirely different economic realities. What has been given little to no attention is how the stock market caused such a dramatic shift in consumer behaviour. 

By the early 2010s the stock market saw a rise in growth investing as opposed to dividend investing. Thanks to the extreme growth of tech companies like Facebook and Google, 25 cent dividends from legacy brands were no longer popular. Investors looked for super charged growth vehicles to supercharge their portfolio. As a company executive, to attract a higher stock price, you had to chase growth. For consumers, especially millennials, that pursuit of growth created an era of cheap luxuries. Often without them even realising it. 

Uber delibretaly remained unprofitable, choosing to burn cash to entice millennials with fee or heavily discounted rides. Netflix remained unprofitable for years to attract more of a market share in young viewers. Flashy e-commerce brands you’ve never heard of regularly ate the cost of shipping just to get them to order products. An entire generation entered adulthood in a world where their lifestyle was effectively subsidised. Investors loved every moment of it, salivating over growth numbers caring more for the number of users than the bottom line. 

That culture of growth at all costs soon found a new expression in consumer finance. Buy now, pay later. You can’t split a home loan into four payments but you can split a tv, your phone and even a burrito into smaller payments at zero interest. Boomers had to save for their wants, millennials can walk out of the store while only paying 25% for them. A $20 meal became four $5 instalments spread over two months. For many, five dollars felt trivial compared to the cost of a meal out. By contrast, a home made meal will probably run $35 if they are lucky. That’s not to mention the time it takes to cook the meal itself. 

None of this was available to the Baby Boomers. Instead they had to save for larger purchases and a meal out was somewhat of a special occasion. This divergence in experiences fuels generational tension. Boomers criticise discretionary spending they think is frivolous. Millennials blame previous generations for housing becoming unattainable. 

Then came the pandemic, which upended spending patterns in a way no business model had anticipated. With everyone stuck at home, the government was forced to pay everyone’s bills. Left with little choice, they flooded the economy with excess cash to keep everyone’s lights on. When the world opened back up that cash started to flow properly through the economy and prices rose. That dynamic helped fuel the inflation of recent years.

That same inflation has led to consumers tightening their budget. Something millennial Australians weren’t used to in the slightest. The youngest millennial wasn’t even born during the previous 1991 recession and the oldest millennial was barely turning 10. As Millenials tightened their belt for the first time, experiencing their roughest economic period to date, companies found it impossible to grow. For Millenials, this marked the end of an era. The cheap rides, free shipping and easy credit that defined their young adulthood were gone. Replaced by higher costs and fewer shortcuts. 

It was clear that subsidising growth was no longer going to work. That left companies abandoning a strategy that hade plagued our economy for almost 15 years. Sustained double digit growth proved unsustainable, even for the tech giants that had once set the pace. They needed profit to survive. 

As growth gives way to survival, Millennials face an economy they scarcely recognise. Cheap coffee, free shipping and cheap credit have vanished,yet housing is more unattainable than ever. The real test is whether a generation shaped by subsidised luxuries can adapt to a harsher economic reality.