real economy

Understanding NZ’s rising Millennial population

New Zealand's Millennial population is now potentially larger than the baby boomers', so understanding their spending habits will be crucial to how we make investment decisions in the next few years, writes Hobson Wealth Partners' Brad Gordon

According to Macquarie Research, by 2030 two out of every three dollars in Australia will be earned by Millennials. It’s a topic that is becoming increasingly relevant as we consider the investment decisions impacted by the rise in importance of this generation.  

A good place to start is by defining what exactly a “Millennial” is.

According to the term includes anyone who reached adulthood around the turn of the century - although a broader definition has been put forward by Time magazine, that includes anyone born between 1980 and 2000. In simple terms, the first of the Millennials are starting to reach mid-career about now, with the last of them just entering the workforce, or in tertiary training. 

Millennials make up a significant portion of the population in Australia, with Macquarie Research citing their numbers at 7.1 million, or 29 percent of the domestic population. With the added effects of immigration, this number is expected to continue growing. 

In New Zealand, we’re seeing a similar trend. Our Millennial population is now estimated at over 1 million – already potentially larger than the much-discussed baby boomer generation.

So understanding the spending and behavioural habits of this generation will be key to investment decisions over the next few years.

According to Macquarie research, many Millennials feel locked out of the housing market, which in major cities can now cost as much as eight times their annual income. They spend using technology, so will stand in a store and compare prices before buying; and with an eye on the environment and healthy living, often favour experiences over material possessions. Access to education is also seen by Millennials as a key factor to making a difference to the world.  

In respect of their careers, Millennials put a strong weighting towards Environment, Sustainability and Governance (ESG). According to Macquarie Research “Millennials are the most likely generation to say they would change jobs, give up promotion opportunities, move locations, or take a pay cut to have flexible work arrangements”. 

They also say that 87 percent of Millennials believe business success should be measured in more than just financial performance, putting a strong weighting on climate change and the environment, and taking action in this area.  

Clearly these trends have significant investment implications, and according to Macquarie’s report the sectors most at risk are:

- Traditional retailers, with discount department stores particularly affected. 

- General insurers, given the decreased need for insurance and lack of disposable income thanks to Millenials’ lower ownership of goods and the rise of the “sharing economy”.  

On the positive side there are a number of sectors that should benefit from the shift: 

- Freight forwarders, particularly business to consumer, or “last mile” logistic providers – driven by the growing number of purchases made over the internet.

- Airlines and airports will benefit, given the greater preference to experiences, and particularly travel. 

- Data storage: Next DC, a data storage company listed on the ASX, recently stated that “more data has been created in the past two years than the entire history of the human race”.  

- Affordable housing developers, as a result of Millennials largely being locked out of the housing market due to high prices, high levels of student debt and below-trend income growth. 

Millennials are in the process of drastically changing income and spending habits, and investors shouldn’t ignore the major structural changes this generation are bringing with them. While there are significant risks to some businesses, many new world businesses are set to reap significant benefits.

The views expressed in this article are those of Hobson Wealth Partners Limited, an NZX Firm. The disclosure statement for Hobson Wealth is available free of charge by contacting us on 0800 742 737.  This article contains class advice only and does not consider objectives or situation of any particular investor. It should not be construed as a solicitation to buy or sell any financial product, or to engage in or refrain from engaging in any transaction.  We recommend that you consider the appropriateness of information to your situation and obtain financial, legal and taxation advice before making any financial investment decision.

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