THE ECONOMIC VIRTUES OF MILLENNIALS
(Delivered on September 15 at the De Meo/Schneider Investment Conference in Chicago)
Deidre McCloskey is a renowned economic historian at the University of Illinois right here in Chicago. One of her more striking ideas is that the virtues of different social groups are strongly determined by their economic status. For instance, the peasant class, having no prospects for financial gain, glommed onto the virtue of humility, linked to the idea that God would reward them for their humility someday in Heaven. For the aristocratic class, whose financial prosperity was assured, courage became a dominant virtue. They who have everything only lack the military adventure of becoming warriors, on battlefields where their bravery will be indispensable. Thus rich male aristocrats built the virtuous cult of the warrior. By the 1700s in Europe there was a middle class—of shopkeepers and small manufacturers—who had far more financial prospects than the peasants did, but far more economic insecurity than the aristocrats did. They developed the virtues of thrift and prudence—what Professor McClosky calls “bourgeoisie virtues.”
But what about today’s Millennials, or Gen Y, who now outnumber dying Boomers as a percentage of the American population? Do they have any virtues? And are their virtues a function of their own economic conditions, into which they were born? Are their virtues those of humility or courage or thrift? Are they peasant, middle class or aristocrats?
Well, to answer the first question, they do seem to have virtues, and included among them is a certain disdain for “stuff”—a rejection of what we might call “materialistic” values. But right away we run into some complexity, because for the makers of “stuff” this Millennial virtue is an economic hazard. Who will buy the stuff that the makers of stuff produce? And then there’s another question: If Millennials reject materialism, do they thereby embrace spiritualism? Well, here’s a clue: nearly one third of Mllennials are not affiliated with any religious denomination whatever. That doesn’t mean they aren’t spiritual, but it does mean that they’re not necessarily spiritual in a Presbyterian, Roman Catholic, or Reformed Jewish sort of way.
But if they dislike stuff, what do they like? Well, they like experiences, and in this sense their economic tastes, if you will, are a blend of aristocratic preferences and middle class aspirations towards luxury. What might seem luxuries to an older generation are almost necessities for them: trips abroad, going to clubs, dining out at good restaurants, and the sort of semi-hazardous recreational jaunts that you might find outlined in Outside Magazine. Recent research on their hotel preferences, for instance, suggests that they aren’t into the usual luxurious appointments of hotel rooms but rather into a different sort of luxury: hotel rooms that are totally wired to the outside world, and hotel rooms that can be booked without having to deal with any living person, even to get the key card.
So will Millennials save money? Oh, yes, but not for a rainy day, at least not yet. They will save for specific things they want, and there are bright new organizations such as SmartyPig that will help them save for particular things, such as a trip to Italy. Millennials tend to be fiscally prudent, like the old bourgeoisie were. They pinch pennies and track them. But they often do so in order to make sure they have enough money for worry-free purchases of experiences—a strange mélange of middle class savings and upper class aspirations.
They don’t like debt. They’ve seen their families suffer from excess debt during the financial meltdown of 2008-09. In this sense they’re somewhat like my own parents were, they who came of age during the Great Depression. I can recall my parents being very suspicious of the installment plan as too good to be true. They never paid any credit card interest in their financial lives. And Millennials don’t like credit card interest either. Over six in ten of them don’t have a credit card. They prefer cards where you pay as you go, whether it’s to the grocery store or to Paris.
Perhaps because of their student debt and their slow-off-the-mark job prospects, even if they have finished college, or maybe because they sense that in a globalized economy they could find themselves replaced by outsourcing or robots or algorithms, they are putting off the “check-list” financial decisions, such as car purchases or mortgages or marriage or children. They are getting to these later in life. This means that for now they are a “sharing” generation: sharing rides and apartments—even to the point of married couples living with single friends. This also means that they have a complex and delayed relationship to financial institutions. But they apparently know what they like. They like to deal with a single decision-maker. They don’t like to be passed off to middlemen, even on their smart phones. They like financial advice that settles somewhat in a “cloud”—they like dealing with financial advisors who will deal with their data and needs on a personalized basis. If they were to have several accounts in a bank or credit union they don’t want to have to deal with a different person for every account.
Here, I speculate, is the influence of the high technology that dominates their lives. They like personalized, integrated data—back to that cloud again—and they like to make rather idiosyncratic and personalized purchases. Here is the market economy that Chris Anderson of Wired Magazine has dubbed “the long tail,” of which Amazon is the best example. Here is a leviathan corporation that can afford to keep just a few copies of a specialty book because they do so much business in selling everything else. Not only can you buy this book on Amazon; you can also find it easily on the website. This market economy has conditioned Millennials to think of their purchases in highly personal terms. What they buy online is who they are. And it extends to financial institutions, where they like the idea of service just for them, by which I really mean “service just for me.” Master Card has recently come out with a service called “in reach” (it’s trademarked) to supply Millennials with a wide range of advice about all aspects of their financial and even professional lives. But again, the idea is that this counsel must fit individual young persons. And with that service Master Card hopes to lure Millennials into getting and using…a credit card!
But what about investing? Will they at least invest in the stock market, which after all has proven over the long haul to be a terrific way to pile up money if you stay with it and diversify your decisions? Well, they might be forgiven if they don’t quite trust the market, which they’ve seen go way up, go way down, and then go way up again. How long before it crashes, they might well ask. But they will invest in the market if they can do so commission-free off their Apple Watches and Androids and I-Phones. One new company, residing naturally in Palo Alto, helps them do that. It’s called RobinHood.
So Millennials, to summarize, are fiscally conservative like a good middle class person might be. Yet they have certain patrician tastes for experiences and are thrifty more in the service of those than in the service of stocks and bonds. Perhaps because for them experience is so “virtual”—because they can see so much on their screens without having to be there—they are looking for non-virtual versions of that same experience. They have almost a Depression-era aversion to debt, and like many in the wake of the Great Depression, they are putting off the big financial decisions. But Depression era young people hardly saved their money in order to climb the Swiss Alps. The 1930s saw a rise in American radicalism, as millions of Americans began to distrust a financial system that had let them down. Millennials likewise are suspicious. They like transparency. That’s why they tend to have positive attitudes towards Wiki-Leaks. And so they transfer this love of openness and information to financial institutions. Officers should expect that Millennials will not come into face-to-face meetings without having done a lot of research about both the subject and the lending or investment institution.
And yet they have so much potential and actual purchasing power that it will be impossible to ignore them and their needs. They worry about their job prospects, yet they seem to know that as a group they have leverage. I am a Baby Boomer and came to be born because my parents believed in the future. That’s because they were blessed with a post-war prosperity. Many Millennials likewise were born during the booming 1990s. They are Clinton babies. And there are lots of them—75 million at last count. That represents a lot of money. If each one of them spends a million dollars over their lifetimes, we’re talking 75 trillion dollars. That’s a fairly large amount of bitcoin!