Millennials Will Begin to Impact the Economy in a Big Way (As Long as Debt Doesn’t Get in the Way)

June 3, 2015 DATAMARK

Millennials–those born between the early 1980s through the early 2000s–now make up the biggest part of the U.S. workforce, according to a new Standard & Poor’s Capital IQ report.

Generation Y, as this demographic is often labeled, spends about $600 billion annually. But what kind of impact will Millennials have on the economy in coming years? That’s the big question S&P analysts attempt to answer in its study, “Millennials and the U.S. Economy: The Kids are All Right (Or Soon Will Be).”

The report paints two possible scenarios. One holds a positive outlook, with a slowly growing economy leading to increased Millennial incomes. And though Millennials are known to have different buying habits than their parents–they buy homes later in life, and prefer to live in cities with good public transportation, and therefore less need for cars–they will make these big purchases eventually, especially as they start to support growing families.

However, a downside could emerge if the economy stalls and Millennials begin to feel the crush of their  huge student loan debts.

“If wages stay stagnant because of a continued slow-growth–or even moribund–U.S. economy, Millennials’ heavy student-loan burdens could seriously crimp spending,” the S&P analysts write. “In this scenario, lower wages could reduce U.S. GDP growth by as much as $244 billion in the next five years (almost $49 billion a year). We could see more distressed student-loan debt, as well as a continued increase in income inequality, which we’ve highlighted as a drag on the U.S. economy.”

In their study, S&P uncovered similarities in money-management habits between Millennials and their grandparents and great-grandparents from the Silent Generation. These were the Americans born between the mid-1920s and early 1940s whose conservative fiscal habits were shaped by the effects of the Great Depression.

Like their cautious grandparents and great-grandparents, Millennials tend to keep plenty of cash on hand. More than half their assets are in cash, one-third are kept in equities, and 15% are held as fixed-income assets. Eight in 10 Millennials say one big lesson they learned from the Great Recession was to save money in preparation for another economic downturn.

Unfortunately, the heavy debt loads carried by Millennials is preventing them from being as thrifty as they would like to be. Only 55% are currently saving for retirement, the S&P researchers report.

The post Millennials Will Begin to Impact the Economy in a Big Way (As Long as Debt Doesn’t Get in the Way) appeared first on Outsourcing Insights.

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