Since it’s the New Year, I thought I’d start the year off with a post about the Millennial Economy. The rise of quiet luxury doesn’t have much to do with budgeting, but it does have a lot to do with economics.
Millennials have reimagined the design world, from fashion to interiors, in their efforts to adapt to rapid changes in the economy. The result of these economic changes is that quiet luxury became the best way to achieve a beautiful home that is also financially sustainable.
Real estate inflation took over household budgets
It’s well known that the cost of a typical mortgage is near historic highs, with the median household spending 44% of income on their mortgage in 2024. What’s less well known is that non-mortgage costs represent more than half the cost of home ownership today.
As a home owner, you have no control over the cost of insurance or property taxes. What you can influence is the cost of maintaining and furnishing your home. Being financially mindful with how you decorate and care for your home has never been more important.
Grocery inflation made affordable luxury seem cheap
When I studied Fashion Marketing at Parsons, one of the most interesting customer personas was the designer aficionado who would spend 10 or even 100 weeks of grocery money on a luxury handbag. The relative pricing of food and fashion has shifted dramatically since then.
The USDA recommends a moderate grocery budget of $1300 per month for a family of four. By comparison a Michael Kors Tribeca Bag is currently priced at $358 at full price. In other words, you can buy an affordable luxury handbag for the cost of one week of groceries today.
Everyone feels rich or wants to be rich
According to Charles Schwab’s 2023 Modern Wealth Survey, nearly half of Americans surveyed felt wealthy with an average net worth of $560,000. However, their survey sample also believed that it took $2.2 million to be wealthy. In other words, the typical American feels as if they are about 4x wealthier than they are!
This attitude has a profound influence on the lifestyle needs it takes to “keep up with Joneses” in America today. The majority of Millennials surveyed (61%) said that being able to afford a similar lifestyle as their friends is what made them feel wealthy. No other generation feels more pressure to project financial wellbeing than the Millennial generation.
Cost of future education is staggering
The official cost of attendance at an Ivy League school is about $360,000 for 4 years. If you look at a post-graduate degree as well, such as a law degree, that could be an additional $300,000 for another 3 years. For a family with 2 children, that means that a top university education has a baseline cost of about $1.5 million today, or, $50,000 per year in college savings for 17 years.
Slow wealth creation left Millennials with limited discretionary income
So, Millennials are spending 44% of their income on their mortgage, buying groceries that cost as much as a Michael Kors handbag per week, trying to save face with their friends, and saving $50,000 per year for their kids’ college. What does this mean for discretionary income?
According to the 2022 Federal Reserve SCF data, only 1 to 3% of Millennials have crossed the $2.2 million threshold. That means that very few Millennials have substantial discretionary income.
In the world of luxury marketing today, thoughtful young people incorporate luxury into their lifestyles, while planning for their financial futures rather than living extravagantly. And, quiet luxury is here to stay.
Read more about the evolution of affordable luxury here.
