Digital Natives and Economic Backlash

Oct 02, 2014

If you keep up with financial trends, you might have caught a recent story that got a lot of people talking. It wasn't about the typical financial issues like dropping stocks, government debt, or health care costs. This story had a very specific audience: Generation X. Apparently, Gen Xers have run into some difficult financial times.

The report from Pew Charitable Trust found that Gen Xers are making more money than their predecessors, but they have accumulated far less wealth: "Americans born between 1965 and 1980 ... have higher family incomes than their parents did at the same ages, but only a third have higher wealth." How could this be? Pew pointed to a few reasons, most prominently student loan debt from college degrees. It also points to factors like the Great Recession in 2008 and rising unemployment rates. All of these reasons are absolutely valid, but in my opinion, Pew might have missed one big possibility for Gen X's inability to save money: technology.

Just recently I sat down and went through my finances, breaking down what I spend per month into categories such as entertainment, food, and bills (consider this an analog Mint app). After figuring out how much I spent on groceries, gas, and going out, I realized that there was one big category I had missed: the amount of money I spend on technology or technological services. So, I started a new column on my Excel spreadsheet, and added up my cell phone bill, cable, Netflix, Hulu, my NY Times subscription, and cost for internet service. All in all, it came out to well over $200 a month. That might seem low, but I'm a digital native and I have roommates, so I was a little shocked.

I then picked up the phone and had a conversation with my mother, who was born in the 1940s, part of the Silent Generation. I started explaining my issue to her, sighting all of these expenses that at one time may have seemed unnecessary to me, but now seem like I couldn't go a day without them (OK, having cable, Hulu, and Netflix is still unnecessary). When I asked my mom how she was able to save money when she was my age, her answer really got me thinking. She said, "well, I just didn't have those bills when I was your age."

It's true. When people of my mom's generation were growing up, there were no smartphones and tablets and internet to eat away at their bank account. Now, everyone has at least some form of technology they are paying an arm and a leg for. According to Pew Research, 90% of American adults have a cell phone, 58% of American adults have a smartphone, 32% of American adults own an e-reader, and 42% of American adults own a tablet computer. Whether we like it or not, every app we buy, every movie we stream, and every book we download onto our Kindle adds up to big bucks.

I have to wonder if a study like the one detailing Gen X's downfall into debt might cause a change in spending habits of generations to come? Should technology and content companies be worried about a sudden dip in customer consumption, especially considering their biggest customers, Gen Y, are on tight budgets?

Maybe, but I don't think that it is likely. It seems that Millenials are still spending on what some would consider "extravagances." A Forbes article from 2012 notes that "Millennial college students (without full-time jobs) spend $784 a month on discretionary expenses, especially food and entertainment, according to the Moosylvania marketing agency. Millennials are the largest demographic purchasing new technological gadgets and fashion apparel." Just look at the fact that, in only a few weeks, Apple has sold 10 million units of the new iPhone 6. Multiply that by the running cost of each iPhone, and you can see where I'm going with this.

But Gen Y's spending prowess differs from earlier generations, even Gen X. Although Gen Y is still dealing with some of the same issues: student loan debt, the economic recession, and unemployment, according to The Boston Consulting Group, millenials account for an estimated $1.3 trillion in direct annual spending, but they expect a much different relationship with the company they are buying from. As the BCG says, "Millennials expect a two-way, mutual relationship with companies and their brands. We call this the reciprocity principle. Through the feedback they express both offline and online, Millennials influence the purchases of other customers and potential customers. Furthermore, they engage with brands far more extensively, personally, and emotionally-and in entirely different ways-than have other generations."

I totally understand this. For me, when it comes to spending money on technology, no matter what form it may take, it all comes down to quality. There's no way I would keep an account for Netflix, Hulu, and more recently, Amazon Prime, if I didn't see value in each of these offerings and didn't feel that, to a degree, I am valued as a customer.

It seems to me that in order to avoid Millenials tightening their purse strings, it is imperative for content companies to change how they relate and communicate with them. Content companies should a) make sure that their content is the highest quality possible--you have to give Gen Y a reason to spend money, and b) if you haven't done so already, start immediately implementing a two-way marketing technique.

Gen Yers want to take an active role in the companies they support, whether that means posting positive reviews for friends, promoting them on social media, or simply letting the company know they are doing a good job. Instead of looking at Gen Y spenders as just consumers, start looking at them as possible brand ambassadors, a title that not only makes them feel welcome, but helps get the word out about your company with minimal effort.