1 Consumer Behavior – UK Millenials Savings Problem in Light of the Intention Millennials are the generation that saves the least out of all others that have come before them since World War II. They own less property and have fewer savings than previous generations. They are also the generation that has experienced the most economic upheaval; from growing unemployment, a major recession, government spending cuts and a constantly increasing cost of living. Essentially, young people, especially those from a socio-economic background, are more vulnerable to financial distress despite their intention to be more financially secure. Background of the Problem Millennials from a lower socio-economic background are less academically qualified and have skills that only afford them lower level jobs, and as a result, face the challenge of securing stable well-paying jobs. The challenge is made even more complicated by the global economic slowdown which has affected the UK economy. Despite having a low unemployment rate, the UK’s real wages have stagnated, and even declined. Additionally, the value of the sterling pound declined following the Brexit vote, leading to an increase in consumer prices (Smith, 2016). These economic challenges, when compounded, have a severe negative effect on millennials who due to their socio-economic background have a low earning capacity. Buy this excellently written paper or order a fresh one from ace-myhomework.com
2
Financial Capability An individual’s financial ability to purchase a product or service is the single most important determinant of their consumer and saving behavior. People who earn more money will be more willing to spend money on more expensive products, and are also likely to have a higher propensity to save since their income adequately covers their expenses. On the other hand, those who have a lower disposable income struggle to satisfy their basic needs and as a result, they will be less likely to save a significant proportion of their income. Millennials who earn low incomes attribute their poor savings culture to low wages, high living costs and insufficient employment opportunities (Sternberg, 2019). Additionally, the financial capability of millennials from a lower socio-economic background remains stagnant because they are forced to borrow more debt and incur late charges on their bills in order to sustain themselves. Theory of Planned Behavior The theory of planned behavior identifies the relationship between one’s beliefs and their behavior. According to the theory, behavior is determined by an individual’s motivation to perform the behavior, and their ability to regulate their actions. The theory of planned behavior is applicable to the study of millennials’ consumer behavior and savings culture because it examines whether their attitudes and capabilities have any bearing on their low savings (Rookes, 2013). It is important to identify whether millennials in reality are unable to save or it is their perceptions that affects their ability to save. Millennials on low incomes believe that they cannot afford to save because they do not have much income left after paying their bills and other basic needs. However, the poor
3 savings culture can also be attributed to their financial priorities. Millennials have grown up in a consumerist culture where there is pressure to constantly purchase products, and as a result they tend to prioritize spending. Many even take on debt in order to have more money to spend. Studies show that a significant proportion of millennials fail to save due to poor financial planning. However, those who earn a lower income, have a greater challenge because they are likely to have more debt and also have less information and knowledge on how to save. Intention – Behavior Gap Most millennials are aware that they need to reduce their spending, pay off their debt, and develop a better saving culture, however, despite their best intentions, they are unable to make sound financial decisions. Millennials who earn a low income have a higher intention – behavior gap because they less control of their finances since they have to allocate more of their income towards debt, bills and emergencies. To regain control of their finances, they should set implementation intentions where they will commit to save a certain proportion of their income, no matter how small. The key is to develop a conscious intent to set aside some money for their savings. Having a wide intention – behavior gap leads encourages even more financial imprudence, hence it is crucial for millennials to learn how to bridge the gap to avoid further financial distress. The gap can be bridged by being more intentional about how one spends their income. For instance, it might mean spending less on rent and household expenses by sharing accommodation, or seeking opportunities to improve one’s skills in order to secure higher paying employment opportunities. Bridging the intention-behavior gap through appropriate strategies, behavior and actions can be used to correct even the most dire financial situations (Counsell, & Halpern, 2018). Millennials from a lower socio-economic
4 background should be more deliberate and committed in their efforts to improve their financial situation. If left uncorrected, their financial situation has the potential to deteriorate even further. Lower-Income Millennials’ Saving Habits The UK economy has over the years experienced changes that have increased the cost of living, thus making it more difficult for people to afford the same standard of living that they were accustomed to. Millennials, and particularly those who earn a lower income, face challenges in living within their means, thus are forced to borrow more and save less. To understand millennials’ savings problem, it is crucial to examine their money habits; and whether changing these habits would enhance their ability to make better financial decisions such as living within their means and saving. Habits are a multi-dimensional concept; they are determined by experience, personality, skills, knowledge and opportunity. Individuals from a lower socio-economic background score lower on each of these aspects (Cristiano, & Atay, 2019). This increases their propensity to exhibit poor financial habits. Having a low income, economic inflationary pressure and competing needs has a direct impact on low-earning millennials money management habits. They tend to have a sharper focus on the now rather than the future, and are more likely to make the wrong financial decisions. Their poor financial habits are also shaped by the fact that due to their lower academic qualifications and bring relatively unexposed, they do not have sufficient knowledge and expertise to develop the appropriate financial habits. Lower-Income Millennials’ Saving Attitude
5 Millennials’ poor savings and consumerist cultures are an expression of their attitude towards money management. Lower-income millennials have a bleak outlook towards the future because of their current personal financial challenges and the economic issues experienced not only in the UK but globally. They are unable to secure well-paying employment due to their lack of skills, and therefore feel stuck in their current financial situations where they have to live from hand-to-mouth. They feel that they might not be able to fully pay off their debts, afford a home, or save adequately for retirement. Their current financial situation causes them to be behind their peers, and also increases the probability of their being behind schedule for many years to come. As a result, many have adopted an attitude of concentrating on their present needs, at the expense of the future. Their attitude towards saving is driven mainly by external factors. Construal Theory The construal theory examines the relationship between one’s perception of an event, and their psychological distance from it. Generally, the further the distance, the lower the priority that one is likely to give the event. In the case of lower-income millennials’ money management, the future is highly uncertain and seems to be too far away. Therefore, they make less plans for the future, and focus on their current situation; this is referred to as the planning fallacy (Alt, 2016). Low-income millennials also perceive their income level to be too far from the income level that would enable them to afford to save. They also perceive themselves as being too under-qualified to move up financially; this is referred to as the hypothetical distance. As a result of these challenges and perceptions, these millennials focus on their current needs and pay little attention to the future. Conclusion
6 Millennials from a lower socio-economic background encounter a wider variety of financial challenges than their more financially secure counterparts. The ever-growing cost of living has increased their expenditure, whereas there is little change in their incomes and earning capacity. As a result, a larger percentage of their income goes towards paying bills and other recurring expenses, and their ability to save reduces. For this situation to change, they should work on developing their skills in order to access better opportunities and increase their knowledge on financial management. The government should also increase workers’ real wages, and work on stabilizing the economy to control the inflation rate.
7 References Alt, J. (2016). The Millennials' Money: Why the next power generation CAN afford to build a better world. Dog Ear Publishing. Counsell, C. & Halpern, D. (2018). A behavioral approach to managing money: Ideas and Results from the Financial Capability Lab. London, UK: Ipsos Mori; Social Research Institute. Cristiano, A., & Atay, A. (2019). Millenials and Media Ecology. Taylor & Francis. Rookes, C. (2013). The Financial Capability of the UK. London, UK: Money Advice Center. Smith, A. (2016). Financial literacy for millennials. ABC-CLIO. Sternberg, J. (2019). The theft of a decade. New York: PublicAffairs.