The AIQ Podcast: The fall and rise of millennials

Hello and welcome to the AIQ podcast. A new audio series from Aviva Investors that explores the long term themes influencing investment, markets and economies. In this episode, we'll look at the millennial generation, a term coined to describe people born between 1981 and 2000, having grown up in difficult economic circumstances. Millennials face depressed wages, rising house prices and the burden of student debt. But there are signs they are beginning to overcome these challenges to become more influential as consumers as the younger generation starts flexing its economic muscles.

It will have big implications for financial markets. We'll be hearing shortly from Aviva Investors fund managers about the likely corporate winners and losers from home improvement stores to digital banks and new players in the so-called sharing economy. One thing's for sure, it's not looking good for golf.

Millennials bit selfish, lazy, naive.

I think they have a sense of entitlement.

I think they're a bit self obsessed, really, and they always on their phones.

In the background, you can hear the sounds of a cafe in Hackney, East London. Favorite haunt of the stereotypical millennial is the kind of place a 20 something might come to order an expensive brunch of smashed avocado on toast, ready to be photographed and uploaded on Instagram. But this image of millennials, a spendthrift tech haddock's, doesn't tell the whole story.

As Michael Clement's researcher, Ipsos Mori and co-author of a report on millennials explains that the most common research time people spend on smartphones, on computers, screens. Basically, the figures for millennials is one thousand four hundred seven minutes a week, which adds up to a day on screens. That's actually double the Genex figure to six hundred nine minutes. So, yeah, you'd expect growing up in a much more tech environments. The intensity of someone else's looks different and looks set to stay different.

According to Clements. Millennials aren't any more work shy than their predecessors. If anything, they work longer hours compared with the average. Millennials are often more loyal to their employers and less likely to ask for pay rises, which may have something to do with entering the workforce. In 2007, the Millennials beloved iPhone was released that year.

But more important for their career prospects. Was the onset of the global financial crisis, which compelled many millennial graduates to take jobs for which they were overqualified. Slashing their earnings potential. This process is known among economists as cyclical downgrading. Here's Stuart Robertson, senior economist for the UK and Europe, Aviva Investors.

That's one of the things that has been noticeable. First, during the crisis from about 2008 on is there was a big, big squeeze, real wages as the waves of measures that the squeeze from 2009 as 2014, a five year period, is really quite fierce and probably the most fierce in the post-war period. Whereas in previous generations, people went into jobs either as young people without a degree or as graduates. The expectation the norm would have been fairly rapid salary progression, probably 10 percent a year for those first three, four years.

That probably wasn't the case for those times. So that would've been a rather different experience.

Millennial men in the UK stand to earn 12 and a half thousand pounds less during their 20s than their immediate predecessors in Generation X, as more of them fill part time and low skill roles. That's according to the think tank the Resolution Foundation in the US. A typical graduate in 2009 stood to earn fifty eight thousand six hundred dollars less over the following decade than a typical graduate in 2007, according to the academic research collated by the Huffington Post. These economic pressures mean millennials share some surprising similarities with an earlier generation that grew up amid economic crisis and austerity.

The silent generation of the 1920s and 30s, October 29, 1929, stock prices virtually collapsed with the most disastrous trading day in stock markets history. Billions of dollars were wiped out.

Now, you might scoff at the idea that today's selfie taking youngsters have anything in common with the era of the Great Depression and Dust Bowl droughts. After all, millennials are able to travel the world cheaply and have access to global art and culture at the touch of a button. Luxuries beyond the wildest dreams of Dustbowl America. But the shared experience of financial crises mean that both groups are frugal, holding most of their assets in cash and wary of the stockmarket.

They're also more likely to stash money away for a rainy day. Asked how he would use a tax refund in a 2017 survey, 39 percent of millennials said they would save it, compared with 33 percent of baby boomers and only 23 percent of generation.

X's use of Lehman Brothers collapses sent markets tanking around the world. And I can tell you already the Dow is expected to open 300 points down this morning. That gives you an indication of how jittery the markets are. The global financial crisis of 2008 09 brought the most damaging market turmoil since the Wall Street crash of 1929.

Older generations suffered a more obvious short term hit during this period as their wealth plunged in value. But policymakers attempts to contain the damage, slashing interest rates and pumping trillions into the financial system undoubtedly worked in their favor by boosting asset prices. But it also had an unintended consequence. In 2010, David Willetts wrote a book about intergenerational inequality called The Pinch, which identified a growing disparity in wealth between the baby boomers and their offspring. He says postcrisis policies exacerbated these trends.

That he was necessary to assert itself has had the side effect of boosting the wealth. People have already off key assets, dispersing the wealth of the boomers relative to younger generations. And the good news on the labor markets is the crash has been. High levels of employment. The bad news is with no increase in Take-Home Pay at best. Back at Ladley, Wall Street crash.

Rising house prices and stagnating wages means some millennials are shut out of the housing market. Many more of them are living in the family home for longer before moving out to marry, have children and settle down. This had been evident across advanced economies. Their delay in doing so may be depressing consumption with knock on effects on economic growth. In a report published in 2015, S&P warned a decline in spending among US millennials on houses and cars could reduce U.S. GDP by 49 billion dollars a year.

But all is not lost. Stronger US growth over the last two years has enabled some older millennials to finally take the step to homeownership. This cohort was the largest group of home buyers in 2017. Giles Parkinson, Global Equity Fund Manager, Aviva Investors see signs that after a prolonged low, millennials purchasing power is finally beginning to show my face.

You were on the cusp of that pent up demand actually coming through. We missed out in the last five, 10 years. I'm fairly sure what else you can see above trend growth. US home ownership rates ticks up amongst a younger generation in 2017, having declined for many years. Conversely, actually having the is nothing to passive.

Well, it's early days, but stronger growth appears to be helping millennials emerge from that delayed adulthood phase and start forming households and spending more. This could bring benefits for home improvement chains, which have already started to report rising custom from millennials. But in many ways, millennials spending reflects their years of relative penury in their parents basements and spare rooms. They are extremely picky. Customers are much more likely than other generations to consult multiple online sources of feedback before parting with their cash and share their own reviews afterwards.

Jason Bowen, senior research analyst at Aviva Investors, spoke to us down the line from Chicago about the implications for e-commerce and immediate gratification that happen as a result of that which had both positive and negative impacts.

Great positive. And, you know, that's the new expectation, right? I mean, you're seeing on Amazon like a demand that I have free shipping and then I hear sound. And so that's causing the entire shift and legacy competitors to ship that way as well. Which is great. And a benefit for consumers. Say the negative, though, I do think are short term instant gratification requirement, is you're seeing more and more frustration at a quicker level.

And so whether that means at a higher level of churn that you have a bad experience one time, does that mean you'll never go to a restaurant again or you won't need that ever again? And it definitely challenges being more so than it otherwise would have, you know, 10, 20, 30 years ago.

Millennials are also more likely to favor experiences over the accumulation of stuff. Technology often gives them opportunities to access leisure options their parents might have had to own outright. Millennials are a big driver behind the growth of the big tech giants, the so-called Fang's Facebook, Apple, Amazon, Netflix and. Which added more than one point three trillion dollars to their collective market value last year. When they do buy physical assets, millennials appear to be willing to share them to earn extra income.

Millennials combination of technological savvy and financial conservatism is likely to drive the continued growth of the so-called sharing economy in which asset owners use smartphone apps to lease them. Air BMB, which enables budget conscious property owners to rent out space to tourists, is, of course, the most. While no new platforms are emerging to facilitate sharing of everyday household items, skis, tents, even high end fashion items. But the next big idea in the sharing economy could come in a different industry, suggests Charles Parkinson.

Model that is actually cars. There's no big car company in terms of the sharing economy. It might happen eventually again. From now, because the office vice and he to. Translation and I've got a car parked there. Then when I got off the train to see that can't be this guy. That is something from the other side. Could someone else be using that car? Potentially, yes.

But while millennial preferences are likely to reshape consumer industries, Parkinson warns that basing investment strategies on suppose it generational preferences can be risky. He advises investors to look at what's happening in the here and now and determine whether such trends are sustainable rather than grand predictions about the future.

For example, here is Gulf peak growth was 115 years ago. It's one of the things that you think should happen in an aging population. Baby boomer has more time on their hands. They're going to retire and play golf on action. They show the number of golf courses that are shutting this massive overcapacity.

It's also important not to look at millennials as a monolithic group. Millennials in emerging markets, for example, are often relatively better off than their peers in the developed world. Chinese millennials look set to be increasingly influential consumers in the coming years. Here's Shao Yulo emerging market equities fund manager. Aviva Investors.

The millennials in China itself is more than 400 million or so. It's bigger than the total U.S. population. And in the next 10 years, the consumption power can easily double and the total size. And you created some of the problems. We truly know even more additional demand.

The company is really about in this category now that three trillion dollars in additional demand could foster the continued growth of the big technology companies. In this case, the bats by Do Alibaba and Tencent, whose WeChat is particularly popular amongst smartphone wielding millennials. The younger generation in China is also spending more on education as they seek to get ahead in a highly competitive labor market. As for millennials in the West, it remains to be seen whether the recent positive trends in spending patterns will continue in millennials favor.

Is there growing electoral clout which should enable them to better defend their own political interests? Ipsos research shows millennials in many countries are less loyal to a particular party than their predecessors. Which means politicians will have to devise incentives to earn their votes.

Stuart Robertson says that as the shadow of the crisis lifts, millennials, prospects will improve.

There is a temptation given where we've been in the last decade, which has an extraordinary 10 years, where we start to think about has been the norm. I don't think that's right. I think that growth is the natural order of things. Low positive inflation means the natural order of things. And we're getting back to that now. And it took a long time to get there. And we needed extreme policy, similar stuff. Not every QE. I mean, that period of astonishingly low interest rates for a long period before actually start to gain some traction.

This is in danger of being optimistic. You can think of a world in which growth returns to normal inflation, which has no level, and the policy settings start to return to normal level. And if you like the bank, it means taking the first very baby step in that direction by the rate rose in November.

Millennials had a tough start in life, and the stereotypes about avocados and selfies only added insult to economic injury. But like the baby boomers before them, they are beginning to make their voices heard in business and politics as the shadow of the crisis lifts. Perhaps the kids are all right.