This study constructs a consumption profile for the Generation Y age cohort using responses to the Consumer Expenditure Survey furnished by the Bureau of Labor Statistics from the financial crisis period. This generation was theorized to employ both economic reasons, i.e. preferences for inexpensive products, and the desire to comply with the values and normative beliefs of social referent groups. For the rent or buy a home decision, the variability of income, risk of foreclosure and loss of mobility governed the consumption choice. For the purchase a new car or a used car decision, economic considerations dominated with variability of income being the sole explanatory variable for the choice. Family size and the need to conform to group norms explained the choice of bringing food from home to the workplace. Socialization opportunities and group identification explained the decision to eat lunch away from the workplace. Family size and desire for group conformity explained vacation expenditure as they did for bringing food from home. For both furniture and large appliances and small appliances, the need to conform to group norms was significant suggesting that they may be the subject of social interactions. Given that investment in a private education is often considered a luxury, the proportion of the family budget allocated to this expense was significant along with the expected need for conformity with group values.
Generation Y or the Millenial Generation has been defined as those born from 1982-2002 [
Alternatively, Generation Y may be making consumption choices based on their regular contact with social referent groups through the Internet. The Internet has ben perceived as providing millenials with a new medium of social exchange and membership in online social communities [
This study views consumption choices for Generation Y as arising from price consciousness due to variability of income from employment uncertainty that may disrupt the annuity wage stream and the need to conform to the expectations of the social referent group. Such an integrated approach is novel in that it combines social psychological theory and theories of economic utility. This is in accordance with the Sheth, Newman and Gross Model set forth both utilitarian and social values as driving consumption choices [
The cornerstone of the permanent-income hypothesis (PIH) was that consumption decisions were driven by the expectation of a permanent stream of annuity wage income along with wealth. Until 2007, continued employment meant the assurance of permanent wage income. Wealth originated from home equity buoyed by rising home values. The Case-Shiller Housing Index reached a peak of 189.93 in the second quarter of 2006 with base value of 100 in 2000 [
As interest rates on subprime mortgages rose in 2007, many borrowers could not meet the higher payments resulting in a subprime foreclosure rate of 43% on 6.8% of loans [
Weber’s theory of social class motivates consumption in that membership in a social class confers linkage among members through a common lifestyle and accompanying social restrictions. Social status determines consumption particularly of conspicuous items such as houses and cars as such purchases symbolize membership in a high-status social referent group [
Based on [
Therefore, DeGroot (1970) specifies the probability of each benefit, say B, to be
Consumers will make the decision to rent or buy based on the choice that confers the greater utility of satisfaction given the total probability of realization of all benefits of a particular choice, Pd, where,
P(A), P(B), P(C) = the probability of each benefit.
For renting,
For buying,
where,
VI = Variability of income.
PF = Prevention of foreclosure.
MO = Mobility.
HE = Housing expenditure.
HA = House appearance.
LS = Labor supply or number of earners added to both the utility of renting and the utility of owning.
For renting, the risk of foreclosure is always = 0. With increasing variability of income, a long-term fixed expense such as a mortgage becomes increasingly unaffordable, thereby increasing the risk of foreclosure. Therefore, pe, the probability of reward from preventing foreclosure may become so excessively high for homeowners that prospective home buyers may opt for renting. We pose the following exploratory research question.
Research Question 1: What are the predictors of the decision to rent or purchase a dwelling as the primary source of shelter for the Generation Y age cohort?
As a durable, the purchase of a new car involves a large up-front payment or a large stream of annuity payments as a percentage of wages. When income becomes variable, through loss of work hours or employment, the ability to meet the stream of annuity payments is curtailed, or the new car becomes much less affordable. The payment of smaller up-front payment or a smaller monthly payment assures that the posterior probability of reward,
The original posterior (final) probability of reward for a new car is represented as
where,
Concomitant with this posterior probability, would be a decision risk ρ(δ), which with certainty of a future income stream renders the new car purchase to be achieved at minimum risk denoted by ρ(δ)*. This is the Bayes decision for at the beginning of the period when the new car purchase is still financially viable.
In the next phase, the posterior probability density functionin (5),
where
With the revision of x, the optimal decision risk ρ(δ)* in (5)is no longer optimal, i.e. it does not minimize additional risks implied by the new x.
Such reduction of consumption may only be realized by purchasing the used car.
We may pose this exploratory research question.
Research Question 2: What are the predictors of the decision to purchase a new car or purchase a used car by the Generation Y age cohort?
Anthropologists and social psychologists have recognized the importance of food as a form of developing social class relationships through the sharing of food [
SO = Socialization Opportunities.
DEFH = Deviation of Consumer’s Food Expenditure on Food brought from Home from the mean of the reference group,
DEFA = Deviation of Consumer’s Food Expenditure from the mean of the reference group that eats away from Home.
LS = Labor Supply.
FS = Family Size.
We may pose this exploratory research question.
Research Question 3: What are the predictors of expenditure on food brought from home to the workplace by the Generation Y age cohort?
An individual who eats away from the workplace is usually at a higher managerial or professional level who uses these relationships to further their careers by creating new business opportunities. Therefore, we would expect that socialization opportunities, SO, and the desire to conform to the norms of this group, DFA, would be of value to such individuals. However, such variables, albeit important, are not the only determinants of eating away from the workplace. We may envision a psychological consumption function composed of variables that cater both to individual needs and those that are based on social referent group identification.
where
Uc = Utility of consumption for a rising professional.
IC = Variables influencing individual consumption.
SRG = Variables influencing socially appropriate consumption.
VI = Variability of income.
DFAH = Deviation from expenditure of the Food at Home group.
FS = Family Size.
FH = Food at Home.
LS = Labor supply.
DFA = Deviation from expenditure of the Food Away from Home group.
SO = Socialization opportunities.
All of the sources of individual consumption depend on wages, including variability of income, restrictions due to large family size and contributions from multiple earners. The source of consumption influenced by social groups includes both deviation from the Food Away from Home and Food at Home groups. If we assume that upwardly mobile individuals are more concerned with professional development than being parsimonious, the change in individual consumption variables remains constant over time.
While the career enhancement potential of eating significant mentors and supervisors is obvious, the importance of considering deviations from the Food at Home group is less clear. Possibly, this group is observed to assure that the professional’s status does not diminish, i.e. with an uncertain economic environment, the rate of change in investment in Food Away may decrease though not to the level of the Food at Home group. The Food at Home group sets a lower bound below which the expenditure of the Food Away from Home group will not fall.
Accordingly, if we differentiate the utility function specified in (8) with respect to time,
Given the relative importance of the social referent group variables, we omit
At the lower bound,
The continual decrease in utility of the deviation from expenditure of the Food at Home group merits a negative sign.
We may pose this exploratory research question.
Research Question 4: What are the predictors of expenditure on food eaten away from the workplace by the Generation Y age cohort?
It has observed that Generation Y members often express a preference for appealing environments offering experiential activities [
For most consumers, the utility of vacation expenditure given funding is dependent on family size and deviation from the social referent group with constants for variability of income and labor supply.
where
Uv = Utility of vacation expenditure.
F = Funding for vacations.
FS = Family size.
DESG = Deviation from social referent group.
VI = Variability of income.
LS = Labor supply.
SRG = Social referent group.
For the smaller percentage of consumers who are financially constrained, the utility of vacation expenditure depends upon both social referent group variables and economic (variability of income and labor supply) variables.
As variability of income increases, an offsetting trend may be an increase in labor supply with more earners so that the level of vacation spending may remain almost unchanged. Empirically both, variability of income and labor supply must be included.
Differentiating with respect to VI,
Research Question 5: What are the predictors of vacation expenditure by the Generation Y age cohort?
For millenials who are largely renters, the expenditure on furniture and appliances may not accompany home purchases. They may be more discretionary status symbols. The literature has found evidence that when household furnishings are observed, social class identifications occur [
where
Uf = Utility of expenditure on furniture and large appliances.
FS = Family size.
DE = Deviation from social referent group.
DS = Diminished status.
LS = Labor supply.
SRG = Social referent group.
As furniture and large appliances are purely discretionary purchases, yet with sufficient visibility to confer status upon consumers, as the number of earners increases, consumers are likely to purchase more of these items to increase their prestige with social group members. Labor Supply imposes an lower bound on furniture and large appliance expenditure. Conversely, as Family Size reaches a maximum, restrictions on discretionary spending ensue, thereby imposing an upper bound on furniture and large appliance spending. These relationships are modeled as follows.
As family size increases, more funds are spent on furniture and appliances (mainly due to necessity) so that the utility of meeting group norms, and maintaining status in the group increases as labor supply increases to meet the additional expenditure,
At the upper bound,
As labor supply decreases, even with no increase in family size, fewer funds are spent on furniture and appliances. However, spending is not curtailed completely as status within the group must be maintained. A minimum level of expenditure on these items assures that there is a minimum positive utility of satisfaction with maintenance of position within the group.
At the lower bound,
Research Question 6: What are the predictors of vacation expenditure by the Generation Y age cohort?
Small appliances such as coffee makers, blenders and food processors serve a utilitarian function, i.e. they are used to enhance convenience. They are not status symbols. Consumers will simply wish to maintain their expenditure on these items at the median level of the social referent group. An increase in labor supply may increase consumption of these items if they reduce the time for food preparation as more earners will escalate the need for quick meals. An increase in family size may increase consumption though such an increase may only occur for very large families who find that the existing appliances do not have the capacity to accommodate the needs of a large family. We may pose the research question:
Research Question 7: What are the predictors of expenditure on small appliances by the Generation Y age cohort?
The National Center for Policy Analysis framed the core argument in favor of private schools as the failure of the public system to recognize that students have specific areas of subject interest and ability and that curricula should be designed to meet those individualized needs. Grouping by age instead of subject interest reduces student engagement and academic achievement [
where
SRG = Social referent group.
FS = Family Size.
HS = Percentage of Household Expenditure on Private Education.
Research Question 8: What are the predictors of Generation Y’s consumption of private K-12 education?
Consumption data were collected from the Bureau of Labor Statistics’s Consumer Expenditure Survey’s Interview files which collected household consumption data from 2006-2009. This period was chosen as it covered the financial crisis with expected declines in consumption. The period of time was selected as it represented a time of high unemployment, with expected increases in variability of income―viewed as a particularly important variable in housing and automobile purchase decisions. Subsequently, unemployment expectations have declined, so that more contemporary data may not reflect the importance of variability of income in determining consumption. Study [
Income files with annual wages, number of earners (labor supply), education, family size and age. Expenditure data was obtained from expenditure files which included housing expenditure, mortgage, home insurance, home taxes, home repair, rent, debt, new car price, used car price, car registration, car insurance, car maintenance, car repair, lunch at home, lunch away from home, vacation expense, new furniture expense, new appliance expense, small appliance expense and private school tuition expense. All variables were scaled by total household expenditure. Deviations were measured as difference from the mean. Dichotomous variables for status (0 for renters, 1 for home buyers), mobility (1 for renters, 0 for home buyers) and risk of foreclosure (1 for deviations of housing expenditure above the mean, 0 for deviations of housing expenditure below the mean were created. A Generation Y sample of 2331 consumers was extracted with ages < 30 and incomes < $30,000. Eight OLS regressions measuring the relationships outlined in Sections 2.3 - 2.9 were conducted. To maintain brevity, regression equations are not repeated in this section, but are more thoroughly discussed in Results.
As reported in
Economic considerations predisposed choice for large durables such as housing purchases and new car purchases. Concerns about the increased variability of income prompted Gen Y to rent rather than buy and eschew new cars for their used counterparts. Convenience considerations, such as mobility were secondary to economic concerns about the risk of foreclosure. On the other hand, for less expensive durables such as furniture and both large and small appliances social identification became the dominant criterion. The venue of lunch consumption led to the emergence of two distinct social reference groups. For less upwardly mobile workers, the interaction with similar peers sufficed to determine food expenditure, whereas their more upwardly mobile counterparts sought to eat with their aspirant group at locations away from the workplace. Socialization motives were thus differentiated based upon the location of food consumption. Parents who supported private education for their
Variable | Mean | Standard Deviation |
---|---|---|
Wages | $21942.10 | $19129.18 |
Homeowner Frequency | 1311 | Na |
Renter Frequency | 1020 | Na |
Gender | 1999 Men, 342 Women | Na |
Race | 1134 Caucasian, 1197 African-American | Na |
Education | 1140 College-Educated, 1191 High-School Graduates | Na |
Age | 23.945 Years | 4.38 |
Family Size | 3 Individuals | Na |
Variability of Income | $3208.835 | $19149.36 |
Mortgage | $1892.128 | $1541.66 |
Home Insurance | $282.873 | $350.34 |
Home Taxes | $468.64 | $484.12 |
Rent | 14665.34 per Year | 430825.03 per Year |
Debt | $8736.59 | $16051.51 |
Cost of a New Car | $13103.73 | $8076.04 |
Cost of a Used Car | $4594.68 | $7003.88 |
Car Payment | $553.97 per Quarter | $424.22 |
Car Registration | $111.46 per Year | $161.62 |
Car Insurance | $341.75 | $263.38 |
Car Maintenance | $68.30 per Quarter | $157.02 |
Car Repair | $2458.18 | $56355.96 |
Lunch at Home | 1723 Individuals | Na |
Lunch Away from Home | 1473 Individuals | Na |
Vacation Expense | $350.49 per Person | $614.255 |
New Furniture | $510.52 | $923.70 |
New Appliances | $1023.33 | $1673.18 |
Small Appliances | $59.83 | $69.35 |
Tuition | $571.28 | $782.80 |
N = 2331 |
Rent or Buy-Regression 1 | Coefficient | Significance |
---|---|---|
Constant | 1.30*** | 0.0000 |
Variability of Income | 1.7 ´ 10-6*** | 0.0005 |
Risk of Foreclosure | 4.36 ´ 10-1*** | 0.0000 |
Diminished Status | −7.30 ´ 10−5 | 0.5925 |
Loss of Mobility | −3.33 ´ 10−4** | 0.0025 |
Loss from Limited Labor Supply | −0.07 ´ 10−6 | 0.0604 |
Deviation from Group | 5.9 ´ 10−5 | 0.4387 |
R2 = 0.32, N = 1476 | ||
New Car or Used Car-Regression 2 | ||
Constant | 88.67 | 0.8610 |
Variability of Income | −0.19** | 0.0061 |
Price of a New Car | 21.85 | 0.6156 |
Price of a Used Car | 44.66 | 0.7321 |
Cost of Car Maintenance | −15.88 | 0.5995 |
Loss from Limited Labor Supply | 41.94 | 0.3898 |
R2 = 0.3978, N = 74 | ||
Bring Food from Home-Regression 3 | ||
Constant | 21.07 | 0.0765 |
Family Size | 1.97* | 0.00147 |
Food Away from Home | 0.03 | 0.5912 |
Variability of Income | 4.25 ´ 10−5 | 0.6667 |
Loss from Limited Labor Supply | −3.43 | 0.5813 |
Socialization Opportunities | 23.22*** | 0.0001 |
Deviation from Own Group | 17.28*** | 0.0000 |
Deviation from Aspirant Group | 4.56** | 0.0020 |
R2 = 0.2371, N = 725 | ||
Eats Away from Home-Regression 4 | ||
Constant | 28.76*** | 0.0005 |
Family Size | 0.89 | 0.3823 |
Food from Home | 0.01 | 0.5912 |
Variability of Income | −5.92 ´ 10−5 | 0.3855 |
Loss from Limited Labor Supply | 0.69 | 0.8728 |
Socialization Opportunities | −7.95* | 0.0471 |
Deviation from Food at Home Group | −2.03 | 0.0778 |
Deviation from Own Group | 8.04*** | 0.0000 |
R2 = 0.08, N = 717 | ||
---|---|---|
Vacation Expenditure-Regression 5 | ||
Constant | 0.25*** | 0.0000 |
Family Size | −0.01* | 0.0068 |
Deviation from Group | 0.04 | 0.0000 |
Variability of Income | 0.02 | 0.6853 |
Loss due to Limited Labor Supply | −0.03 | 0.2912 |
R2 = 0.46, N = 170 | ||
Furniture, Appliances-Regression 6 | ||
Constant | 0.20*** | 0.0000 |
Deviation from Group | 0.04*** | 0.0000 |
Diminished Status | 0.11 | 0.1446 |
Loss from Limited Labor Supply | 0.04 | 0.2529 |
Family Size | −0.01 | 0.6818 |
R2 = 0.51, N = 213 | ||
Small Appliances-Regression 7 | ||
Constant | 0.01*** | 0.0000 |
Deviation from Group | 0.01*** | 0.0000 |
Loss Due to Limited Labor Supply | −0.01 | 0.2901 |
Family Size | 0.01 | 0.4583 |
R2 = 0.59, N = 117 | ||
Private School Tuition-Regression 8 | ||
Constant | 2139.21*** | 0.0000 |
Percent of Household Expenditure | −276.42* | 0.0152 |
Deviation from Group | 289.12*** | 0.0002 |
Family Size | −75.12 | 0.0830 |
R2 = 0.33, N = 38 |
offspring formed yet another group that was dependent upon social group identification. However, as the cost of private education is considerably higher than food expenditure, household spending upon private education acted as a constraint.