Before I proceed into my discussion, the case in point:
https://www.cnbc.com/2017/06/30/heres-how-millennials-spend-their-money-compared-to-their-parents.html
Young adults nowadays are spending much much more than our parents' generation, or the older people. This article discusses the reasons why (in my opinion, of course), its repercussions and advantages.
Areas marked with ***** might require some understanding on fundamental economics/finance to grasp.
The why
1. Gaps in daily necessity and needs are constantly being filled and patched up.
This is one of the reason I got to writing this article. The line between needs and wants are being blurred as companies and kickstarters constantly innovate new products to improve our standards of living. I am actually spending more money than I would have if technology or creativity isn't this advanced, but wait, I am happy to do so. Imagine this, 10 years ago, I would buy a phone because you can say I need the phone. That might be considered a want for many, but ok just stay with me for this one.
I would buy the phone, I will use the phone, that's it. As a matter of fact that is exactly what happened for me 10 years ago, in secondary school. Fast forward to the present, I bought my most recent phone, a samsung s7, a few months back. Since then I've spent money on a couple of tempered glass screen guards, cases, additional charging cables, multi-usb charging ports, bluetooth earpieces, earpieces, that ring thingy where you stick to the back of your phone, wifi-extenders, etc. These purchases would not appear without the purchase of the smartphone.
However, am I complaining? nope. I would definitely say I need those cables simply because my old ones aren't working. I need the multi-usb charger because I need to charge my bluetooth headphones, my ipad, and my phone at the same time. I need that ring-thingy because I do not want my phone drop kicking my face every time I use it before bed. Thing is, these needs arose because of my smartphone purchase, which is a need.
Just to clarify, I am not against the improvement of technology, I would definitely chose spending on all these instead of going back to using a non-smart phone and not doing these purchases. I am just saying technology is making us spend more because now we can. Because of technology, we are allowed to increase our standards of living by spending more. 10 years ago, you couldn't attain the standards of living now no matter how much you spend.
Technology aside, I recently purchased some NATO watch straps (the cloth ones) for my watch because I do not like the weight and feel of the original metal bracelet. 10 years ago, the only choice for me were to suck it up or to not wear the watch entirely. This money would not be spent. However, I am happy and my standards of living have increased because of this purchase.
I am sure many of you see new kickstarter projects appearing all the time - New bag for cameramans! New activewear for the sport enthusiast! New pants for hikers!
These increased spending would not be possible at all 10 years ago, and we're all the happier for its existence.So by now I am sure you get my point. Technology and innovation allows us to spend more, and so we shall.
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This means that as innovation opens up increased marginal benefits, and we will always base our purchases such that marginal benefit > marginal cost, so too shall marginal cost increase.
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2. It is getting easier and easier to spend money.
Remember the days when you forgot to bring cash out, and nobody would lend you money? In secondary school, I starved. Now?
With the plethora of payment methods such as visa paywave, credit cards, debit cards, paypal, paying with your phone to PAYING WITH A WATCH. Money flow is much more fluid compared to the years back. This would simply allow us to be trigger happy with our spending as rational decisions are less likely to be made when liquidity is so easily available.
I am definitely a 'victim'(can't think of another word atm) of this. I have never been happier for the advent of online shopping. In many cases, online shopping is actually much more convenient and cheaper than actually going out to a store to buy it. It is also for this exact reason I am spending more than I would be if online shopping didn't existed.
So recently I ordered a laptop from amazon for about ~$900sgd net because that model wasn't available in Singapore. If this hasn't existed, I would probably either (a) not buy the laptop or (b) settle for a costlier version that meets my criteria, but either option I would be worse off. Bear in mind the importance of the term worse off. Worse off does not simply imply spending more. I would be worse off if I do not buy the laptop from amazon because I actually need/want it, and that inconvenience in my life would cost more than the $900sgd.
However, on the purely monetary spending side, this $900 would probably not be spent assuming I go with option (a) if online shopping wasn't a thing. I spent $900 more because of the availability of spending, and I am happy to do so.
Online trading. I will not go into too much details but basically the purchase of stocks, bonds and financial assets are also increasingly becoming easier due to the advancement of technology.
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Inexplicit social costs such as travelling, hassle of payments would contribute to an increased marginal cost and thus for the exact same product (marginal benefit), the lack of liquidity could push MC > MB, stopping the transaction altogether.
Also, given MV = PY, the increasing availability of payment methods would increase V and thus P/Y
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3. Social-media induced advertisement/pressure.
There's this buffet that I would definitely not have eaten because I simply do not know about it, but because I browse instagram, I did, and it was definitely worth the money. I am better off after spending this money on the buffet. So to reiterate my point, I'm not complaining about increased spending. However, fact is I did spend more because of the creation of instagram. That is just an example, with the smart-ads nowadays, I am sure the browsing of any social media would cause me to spend more money in areas that I am interested in (mostly food, but yeah).
Similarly, seeing your friend post about a new purchase or recommendation would tempt a fair amount of viewers to do so as well, and I am sure they are happy to do so. Remember, we're all increasingly spending more at our own discretion, nobody is holding us at gunpoint or hitting us with hyperinflation. That brings us to the next point.
Pressure. Well personally I am not really subject to it as I couldn't care less about what people have that I don't just for the sake of having it. However, it is undeniable that some of us have to buy branded goods because their friends are posting it on instagram. This would cause a propagation of purchases as a girl buying a Chanel bag would prompt a few others to similarly purchase a branded bag to 'save face'. Similarly, guys are into sneakers or some streetwear rubbish (sue me) and one or few purchase would propagate many more.
All of these increased spending basically stems from the increased exposure to the daily lives of one another, by social media.
So by now some of you might be thinking,
What does these have to do with anything?
By now we have fairly established that people nowadays ARE spending more money, and why. This increased velocity of money flow and increased standards of living would basically mean that everyone is better off because of technology. Simply because the people buying smartphones have to buy other necessary accessories for it, more jobs can be created for these producers. Because more people are buying sneakers, more jobs can be created for those companies.
To put it in a bigger picture, because of increased spending habits, generally people would be receiving increased salaries, and then they too would spend on attaining a better living standard. These increased spending would benefit the economy as a whole, and the way we can benefit from it is to definitely take part in this boom. That's where investing comes in. While it is said there is a 'right' time to buy stocks, when they're the lowest, when market crashes etc, to be honest I feel that the right time is now. Due to the inevitable progress of technology, the economy in turn shall progress as well. Market noise aside, if one looks forward far enough, they shouldn't be clouded by the smoke and fear of market swings, but instead understand that macroeconomically, the earlier you invest, the better. The event of market crash is always unpredictable, and a year you hold your cash uninvested, it is a year lost in opportunity costs.
This is also another reason why I believe investing for the long term is still full of steam. Major corporations would benefit NOT because they invents a new product or comes up with a technological breakthrough, but because of the increased spending and flow of money would undoubtedly have a portion of them flowing to these companies.
Putting it in another perspective, we can see that different companies are like different tributaries (these are the smaller rivers that branch off a larger river stream), where blue chips (large cap companies) are the bigger ones and developing or new companies are the smaller ones. What is happening now is that the entire start of the river has increased flow of water. While some empty ground could turn into a new stream (kickstarters/new technology/new products companies), and some smaller stream could potentially turn into a large one (medium sized/developing companies), fact is the large streams in the first place would definitely receive the increased water flow, albeit not relatively proportionally larger versus the smaller ones. I am still extremely adherent to my views that one shouldn't invest in a volatile company/industry/financial asset, but still, those are my views. For the better or worse, I am very risk averse.
Thanks for reading!
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