It is five years after the great financial crisis, but the world economy remains weak. The fall was deep and painful, but this cannot fully explain why we are facing such a numb economic activity five years and too many billions of liquidity spoon-fed by central banks after the crisis.
Economic growth, not unlike the person’s motivation to achieve is based on greed – the most natural and basic of human traits. The occurrence of market bubbles and economic crises is a natural consequence of our desire to possess. By definition, it is this same thirst, which gets the economy running again once it hits the bottom. Although greed leads to the inevitable boom and bust cycle, it is essential to capitalism and the lack of it is bad for the economy. It is not the pain of the 2007 crisis that slows the economy down. Instead, it is the fact that we have learned from it, which is dangerous. It has left an imprint on a generation of young people.
We try but never choose. We socialize but always stay distant. We buy but never make an impulse purchase. We are Millennials, a generation born between 1980 and 2000 and the offspring of the worst financial crisis ever. Get to know us, because we cripple the economy. Our guilt is a paradox of our brilliance. Growing up amidst the broken dreams of middle class and the fragility of social justice, we have become the most rational and careful of all generations.
The unprecedented growth of the pre-crisis years was based on a combination of cheap debt, lax regulation and strong housing market. The privilege of house ownership was widespread thanks to the financial alchemy which made leverage cheaper and more accessible. Construction is the strongest of economic stimuli. With every new house built, a new household is created and the cycle of spending begins – furniture, household goods, fixtures, garden tools and a plethora of other products are needed. Thanks to strong demand, house prices grew in the pre-crisis era endlessly, so that people who owned houses felt wealthier and spent more (“wealth effect”).
Seven years after the crisis and the governments have let loose once again. They have made it easier for people to borrow and called upon banks to lend through incentives such as first-time homebuyer programs. The Millennials, however, do not seem to care. In US, historically first-time buyers have represented roughly 40% of existing home sales, but this has fallen to as low as 26% in January[i]. More than any generation before us, we tend to move back with our parents after graduating. According to Pew Research institute, 36% of young Americans still live with their parents[ii]. Being the most studied generation of all[iii], we tend to have the highest student loans[iv], but are equally most likely to land a well-paid job[v]. It is not poverty then that should be blamed. Instead, something much more fundamental is causing us to stall.
Never before have we had such an easy access to information. Finding an answer to anything and everything is a matter of seconds. Millennials do not need library. We have Wikipedia. Millennials do not need mothers to teach them how to iron a shirt or fathers to show them how to replace car oil. We have Youtube and endless number of online tutorials. We may be too young to be wise, but we are certainly clever.
Although often considered to be one of the most important investments in life, the homeownership may not be the most rational of life choices. The costs of owning a property are large and going far beyond the one-off price tag and the decades of mortgage repayments. Most importantly, there are very few other decisions in life that require such a degree of commitment. With an unprecedented access to knowledge and answers from internet and social media, Millennials are not prepared to give life the benefit of doubt. We do not want to learn from our mistakes. Lacking the ‘animal spirits’ of the generations before us, it seems that Millennials are unwilling to step forth and make the big life decisions. A research undertaken by Pew Research Centre[vi] shows that only about 34% of Millennials are heading their own households.
It is not just homeownership that we approach carefully. Our buying habits are just as deliberate as our investment choices. With $600 billion spent by Millennials every year in US alone, we seem to have an immense buying power. Yet the way we shop is causing the economy pain and making the retailers run for their money. Research by Accenture[vii] shows that 49% of us will practice “showrooming” – examining merchandise at nearby retail store and the shopping for it online to find the lowest price.
The situation is even worse when it comes to big-ticket purchases. Unlike baby boomers, Millennials do not consider car the ultimate symbol of youth and freedom. According to Pew research Centre[viii], in 2010 only 32% of households younger than 35 had vehicle debt. We leave the corporate world in the vain hope that as we turn adult, we finally start to spend. Millennials are not cheap. We just hate the “definite”. We like to “showroom”, pick and try, but never choose. Constantly glued to our smartphones and tablets, we have access to infinite number of information and options, so that we always feel as if there was another even better product or price around the corner.
Economically impotent, but intellectually gifted, Millennials will change the face of capitalism. The system based on greed and amassing of resources is ripe for a disruption. Until now people have owned too much, but used too little. Already we see the seeds of change. Airbnb allows people to swap their apartments for a short period of time, so that we can travel without hotels, while utilizing our empty homes at the same time. With City Car Club, we can rent a car by the hour as and when needed to travel from A to B, eliminating the need to “wastefully” own a car. By matching private borrowers with clever savers directly via internet, Zopa circumvents traditional bank lending and offers much better rates for both sides.
Trying to put a dollar amount on the meaning of this change leads to astronomical predictions. The real significance however lies somewhere else. Get to know us, because we are Millennials; the generation that has managed to liberate human race from the misery of greed.