Spend First: A Millennial Mindset Shift on Savings

I’ve noticed something after speaking with many millennials in the United States and abroad this year, and in reviewing several recent Doblin client projects related to financial services and banking behaviors. At some point, we usually ask how these consumers approach saving: How do they think about savings? What are ‘savings’ for? Are there goals? Do they budget for them or track progress?

A curious pattern is emerging across these projects — and across the globe.

A generation ago, if you asked someone about savings, a typical response described some savings goal — buying a house, starting a family, retirement — and consumers budgeted for that goal by setting aside “X” amount of money every month or year. For those who could afford to save money, spending budgets were shaped around a savings plan, at least to some extent.

Today’s millennial consumers, by contrast, answer the question differently. The construct has flipped. Millennials we study start with their spending habits instead. Some have a rough sense of what they spend in a month while others are more exact, but most of them describe savings as ‘whatever is left’ after that. And this is true across a range of income levels.

If the spend-first pattern holds, how will millennials navigate their financial future? How will the tools they need evolve? And what are the implications for financial service providers facing pressure to offer new sources of value to these consumers who are increasingly critical of the traditional value exchange with the industry?

I asked a few of my colleagues to weigh in.

Q&A with Ruth Schmidt, Francisco “Sco” Peschiera, and John “Pip” Pipino.

Ruth specializes in user experience and behavioral design applications on innovation projects in and outside of financial services. Sco has guided the development of new perspectives into banking and financial services in the digital age for Doblin. And Pip also has extensive experience innovating in financial services over his 30+ years with Doblin.
Ruth specializes in user experience and behavioral design applications on innovation projects in and outside of financial services. Sco has guided the development of new perspectives into banking and financial services in the digital age for Doblin. And Pip also has extensive experience innovating in financial services over his 30+ years with Doblin.

Should we be worried about how prepared millennials are for the future or does this signal an exciting opportunity instead?

Ruth: What if we reframe the concern as an opportunity? I suspect that some of the “spend first, save later” behavior may be partly the result of an extended young adulthood, grounded in long-term habits. Behavioral interventions to heighten 401k saving — like “opt-out” programs that help people save for retirement by taking a bit of control away from users — have been shown to be quite useful in helping people do what they know they should do, but may not do on their own.

Pip: Programs that lead to “more left over” each month can be connected with ambitions beyond just getting through the month. Many of us cross the point where we think only in the short term and then find nothing past this point to guide us. Financial services can help with this transition time.

What does this mean for their relationship with banks and the ways banks may interact with and offer value to these consumers?

Sco: For many millennials, banks are no longer viewed as important agents in their lives but rather as cumbersome and stodgy institutions of yesteryear. Banks will need to reimagine how they can become relevant to the shifting needs and desires of this perceived elusive generation.

Ruth: We often think of money and finances as transactional at their core. But financial services sometime center on big, emotional actions as well — buying a house or taking out a loan to start a business. These events are more likely to be filled with “I don’t know what I don’t know” anxiety. In these cases, having a person to talk to is enormously valuable. So, the future may mean migrating certain services in a convenience-based digital direction while doubling down on the human aspect of others.

Who else has an opportunity to support these consumers?

Pip: Transaction services. I admire the ease with which younger consumers split a dinner check five ways (and pay each other for it) before the gray beards (like me) even finish dividing the bill. Transaction service providers are well positioned to connect spending moments, non-traditional as they might be, with savings cues and tactics to help this generation.

Sco: Technology companies and other start-ups are well positioned to take advantage of the shift in expectations and consumer needs. Newer, nimbler, companies can more easily adapt and reimagine services to help meet millennials where they are today as well as where they are going tomorrow.

Ruth: Lines between service providers are blurry for young consumers. Where we used to go to bookstores for books and shoe stores for shoes, we now go to Amazon. So, we may see financial services migrate to many other non-traditional sources, stitched into other interactions…. Millennials are also famously social; it’s possible that building on that urge—earning bonus earnings if we all meet a personally set target for saving, for example—could encourage savings behaviors that seem less common in this generation.