2024-02-12 20:10:42
High interest rates and real estate prices outpacing wage growth are forcing younger generations to spend on unnecessary things rather than save for their own home. Instead of buying real estate, they prefer to spend on expensive handbags, luxury vacations or simply buy quality coffee in cafes every day.
They started coming into the world from the second half of the 90s, the oldest of them is now around 27 years old and does not see his future very well. For the so-called generation Z, the financial goals usual for the previous generations are relatively distant. One of the most important is to buy your own apartment.
For example, a survey by the consulting company Deloitte showed that in the Czech Republic, about 35 percent of Generation Z people are most concerned about housing costs. It is no different from its foreign peers. As Bloomberg pointed out, in the United States young people preferred to spend.
He shows it on the example of 24-year-old Nia Holland. She paid $2,500 for a vintage Chanel bag, which in her case meant giving away all of her savings for it. While earning extra money doing research work at the university during her graduate studies, she still wondered if her money could be better spent, saving it or investing it.
At the same time, she does not feel irresponsible by deciding to reward herself with a “small luxury”. Since traditional life milestones – such as owning a house and living with children – are far away for her, she does not want to deny herself such things. And if anything, a lambskin handbag with a 24-carat chain made her feel better.
“The economy is in shambles, we have global warming, constant political and social unrest all over the world,” said Holland, whose family is supporting her doctoral studies in education and psychology at the University of Michigan. “It’s just easier to spend money on things that give you instant gratification.” The allusion to the economic situation is obvious – the young woman is not yet financially independent at a time of persistently high interest rates, when real estate prices are rising faster than salaries.
Frightened generation
At the same time, it means that not only the majority of her age group, but also a lot of people from the previous generation Y, if they haven’t already, can’t fulfill their dream of owning their own home. In a Deloitte survey, even 45 percent of these so-called millennials expressed concern about how they will live.
Usually, when people find themselves in economically uncertain times, they cut back on their spending. However, the younger generation is increasingly doing the opposite because they think their financial future will not be good and they will not make much of a difference. Almost half of Czech members of both generations believe that if the state of the economy does not improve in the coming months, it will be almost impossible to find a job, ask for a salary increase, ask for a promotion, start a family or buy a house. More than a third of them live from paycheck to paycheck, which is, of course, less than elsewhere, on average in the world there are slightly more than half of them.
Sociologist Martin Lux also confirms the trend. “I don’t think they’ve given up on that dream permanently, but they know it’s not possible now, and they’re postponing the purchase of a home until later. A large part of them, about 30 percent, also know that they’ll get an apartment or land, for example, from their parents.”
There is no credible evidence that there is a direct causality between the propensity to spend and the inability to save money for one’s own apartment. However, there is visible spending by young Czechs. “I believe that this can partly explain why there is such a strong demand for vacations and travel. Their consumption habits can also show this, when they buy a coffee for sixty or one hundred crowns a day,” adds Lux.
Data from the US over the past 80 years or so shows that it is getting harder and harder for each generation to own their own home. According to recent Census data, the homeownership rate among millennials is 48.6 percent, which is more than 20 percentage points lower than Generation X (the broadest birth date range is 1965 to 1980) and nearly 30 percentage points lower than so-called baby boomers, i.e. people born in the period after the Second World War.
Even among 40-something millennials, homeownership rates lag behind older generations. Today, 60 percent of American millennials have it, in the case of Generation X it was 64 percent at the same age, and 68 percent in the post-war generation.
Photo: Economy
According to personal finance company Credit Karma, about 27 percent of Americans admit to carpe diem spending to cope with economic and geopolitical concerns. This custom is far from new. Economics professor Stephen Wu of Hamilton College in New York State wrote in a research report published in 2004 that people who feel that luck and other external factors play a significant role in their financial success are less likely to save.
However, the author argues that feelings of fatalism and contradictory spending habits have become more common in recent years, especially after the Covid pandemic and the Great Recession. “That’s when people started to realize that they can’t control a lot of their successes and failures,” adds Wu, a significant element of the nature of the current situation.