Whilst the spending power of today may lie with the baby boomers, the successful companies of tomorrow will be those that can satisfy the very different demands of the millennial consumer. Here we look at what these young people might want from life when they’ve paid down their student debts and tire of smashed avocado on toast!
Who are these much maligned individuals?
A millennial is someone born between 1980 and 2000, sandwiched between Generation X and Generation Z. The X cohort faces the pressures of caring for both children and elderly parents, while the Z’s are acquiring a reputation for a sensible attitude to spending and saving.
There are approximately 1.8bn millennials worldwide (UN 2018 figures), around a quarter of the population. By 2020 they will represent as much as 35% of the workforce. Geographically, 25% reside in China where the number of millennials exceeds the entire US population.
People appear divided in their view of millennials. Some think they have it easy, having grown up in a relatively peaceful society with all the modern conveniences we take for granted. Some may frown as they hail an uber and plan their next mini break, but such extravagances have become far more affordable while the costs of homes and higher education have spiralled.
Certainly, some will sympathise with the hurdles they undoubtedly face: the difficulty of getting on the housing ladder, the insecure job market, and the need to work for longer and take responsibility for their retirement provision.
Can the millennials lot improve?
A recent study by the FCA concluded that, since the Financial Crisis, millennials have become increasingly worse off as their incomes stagnate, while baby boomers benefit from the triple lock pension guarantee. Of course, whilst an ageing population increases the transfer of government resources from the working to the retired, there is always inequality within as well as across generations.
Nevertheless, ‘intergenerational unfairness’ was highlighted by a House of Lords committee that concluded the government was not doing enough to tackle it. It advocated building more homes, improving employment rights and curbing pensioner benefits such as free travel, along with measures to boost productivity and workers incomes.
Interestingly, surveys show that millennials are generally happy with their lives, live for today, spend what they have and care about the world. However, two factors are likely to shape their future prosperity. One is how successful they are in investing for their future. The second is inheritance.
Unless they adopt better saving and investing habits, millennials are expected to accumulate significantly less pension and property wealth, and some may still be struggling with debt at retirement. This is in spite of a leg-up from ‘Help to Buy’ schemes and pensions auto-enrolment. Although they should benefit from the largest potential inter-generational transfer of wealth ever, they may be retired before they receive it. What’s more there is no certainty it will cascade down if it is needed to maintain longer retirements, or swallowed up in care fees.
The green pound
Millennials are notably aware of, and concerned about, environmental issues, expecting products they buy, and investments they make, to match their values. This will require companies to meet high standards in areas such as emissions, waste management and recycling. Those which fail to comply could be at risk of poor financial performance and divestment from portfolios.
A growing commitment to building a sustainable future is creating interest in vegan diets, natural products and less polluting transport, which millennials say they are prepared to pay a premium price for.
How to invest in a changing world
Investors need to ensure their portfolio captures future trends, as the pace of change is faster than ever. This has shortened the lifecycle of companies. We need to be aware of millennials’ evolving consumption patterns which will trigger a whole range of new products and services to cater for them.
One important driver is the rise of the sharing economy, which prioritises renting over ownership. Millennials are less interested in material goods; for example, car ownership is low among the young. Uber and Airbnb may be considered frivolous but can be a cheaper alternative to running a car or staying in a hotel. Other favourites include online and discount retail, fitness, diet, travel, gaming and on-demand video.
Emerging markets will account for circa 80% of the world’s middle classes in just another decade. Thus, operating in countries with rapidly growing younger populations and rising incomes could present opportunities for desirable brands. Indeed, multinationals are already enjoying success in these countries as they leverage their marketing expertise.
We particularly associate millennials with the technology revolution so a fund that tries to identify the latest innovations may be a good place to start. Polar Capital Technology
, silver rated by Morningstar, seeks growth themes around the world and can invest in companies of all sizes.
Smaller Companies funds invest in businesses with the potential to become the leaders of the future. Standard Life Global Smaller Companies
, managed by Alan Rowsell, looks for quality growth stocks which have gone through a rigorous screening process to ensure they are best- in-class.
A popular Investment Trust with a technology bias is Scottish Mortgage
. This Morningstar gold rated trust, managed by James Anderson, often makes investments in companies at the early stage of their development (up to 25% of the portfolio can be invested in unlisted businesses) and holds them for the long-term.
Finally, Stewart Investor Global Emerging Markets Sustainability
fund invests in companies which derive sales from growth in emerging markets (it currently has a 26% weighting in India) and contribute to the sustainable development of countries in which they operate.
Naturally, these strategies require a long-term view which makes them a good option for millennials to invest their own money in. If you have a millennial in your family, perhaps it’s time to start the conversation with them about owning their financial future. Even if the amounts they start with are small, there should be plenty of time for it to steadily accumulate towards achieving their long-term goals.
We do not give investment advice so you will need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser.