In recent years, the millennial generation (those born between the years 1981-1996) finally passed the Baby Boomer generation (born between the years 1946-1964) to become the largest age-based demographic in the United States. This shift has numerous repercussions for financial markets and the economy, especially when taking into account the $59 trillion of wealth that will be passed from Baby Boomers to millennials over the next 40-50 years.
Of course, the millennial generation comes with its own sets of values and behaviors that are formed due to its unique experiences which include 9/11, the Iraq War, the financial crisis of 2008, subsequent weak economic recovery, and intense political polarization. On top of these geopolitical and economic events, there is the role of technology. They grew up with the Internet and integrated smartphones into their lives which have impacted the way people connect, interact, buy, consumer and live their lives.
These experiences have translated into different attitudes toward money. Millennials tend to be more cautious and risk-averse, no doubt in part due to the burden of student loans and traumatic economic events they witnessed their parents face. In terms of investing strategy, millennials tend to follow the conventional wisdom of investing in low-cost indexes which has been a winning strategy over the past decade.
As millennials gain more control over their finances, their values will begin to impact investing decisions. More than previous generations, this generation wants their investments to reflect their values which include social causes, improving the environment, and helping make the world a better place. Of course since millennials are just beginning to make major investment decisions, these results remain theoretical, and it will be interesting to follow up in a few decades to see whether these ideals held up or were compromised in the search for higher returns.
This millennial population bulge puts the U.S. in a better future situation in terms of growth potential and opportunity. This results in a younger, more dynamic population who are starting to form households and are on the earlier part of the consumption curve. Countries like Japan and Germany are mired with older populations who naturally consume less and save more, hindering aggregate demand and growth rates.
Over the next 20 years, the domestic economy in the United States should be powered by this group entering their peak consumption years. And if millennials begin to form households at similar rates as previous generations, economic growth has the potential to surprise to the upside.