To Be Young, Educated, Middle Class and Penniless

For years, marketers have been trying to figure out how to sell to millennials. Start by looking at their empty wallets

For most millenials, home ownership seems like an unattainable dream.
Rick Bowmer,AP

Employers and marketers have for years been trying to figure out Generation Y — the generation born between 1981 and 1996, also known as millennials — and for good reason. It’s a very large group that makes up a significant proportion of the workforce and is of course an attractive target for brands and companies.

In the United States, millennials account for one-fourth of the population, 83.1 million people. The proportions are similar in Israel, with 1.8 million people between the ages of 23 and 38. Companies need to capture this important market, and toward that end a lot of money has been poured into figuring out their tastes.

So when an expert on millennials’ consumer behavior explained, in an interview with the influential U.S. trade publication Adweek, why all the theories about marketing to Gen Y had missed their mark, it set off a storm. “There was a great deal of interest [in millennials],” Alexis Abramson said, “but there wasn’t as much due diligence around that group. We’ve generalized them as a certain type of person, [but] the reality is the rubber is meeting the road. Companies are starting to understand, ‘Wow, we’re not getting the [return on investment] we thought we might.’”

Her research is not alone in raising the problem faced by young adults in the United States. An extensive study carried out by Deloitte of the consuming habits of Gen Y found that between 1996 and 2017, the average net worth of consumers under 35 dropped by 35%. This figure surprised Deloitte’s chief innovation officer for retail and distribution, Kasey Lobaugh. He told Adweek that while they were busy focusing on millennial spending habits as they relate to personal identity or cultural factors, the companies forgot to pay attention to the millennial purse. Lobaugh said he is increasingly aware that consumers’ behavior is much more a function of their income than it is of their age.

The big takeaway from these studies is very simple: U.S. millennials simply don’t have money. There are many reasons for this: declining wages, the real estate crisis that has made home ownership in high-demand areas very difficult and the student loan crisis. Many of the millennials in the United States who took out loans for higher education are struggling to repay them, in part because earning a degree is not as good an economic investment as it once was.

Israeli millennials aren’t necessarily in better shape than their American counterparts. Israel doesn’t have the student loan debt problem that the United States does and tuition costs are lower, but there are other economic factors that erode the economic power of young Israelis, chiefly the main engine of inequality: property prices.

According to Deloitte’s study, in 1997 Americans aged 25-34 spent an average of 8% of their income on rent, but by 2017 that figure had risen to 10%. The Adweek article calls that rise a “significant bump,” while pointing out that the figures are for households, not individuals, and that not all millennials are paying rent. But for Israelis, even the higher figure is a distant dream. According to the Central Bureau of Statistics, housing accounts for nearly 20% of Israeli millennials’ spending. The picture becomes more complex when one looks at income groups rather than ages.

Home ownership a distant dream

Israeli millennials have been hit hard by the housing crisis. According to figures from the Urban Institute cited by Adweek, in 2015 the home ownership rate for Americans aged 25-34 was 37% — 8 percentage points below the rates for Gen Xers and baby boomers at the same ages. In Israel, the home ownership rate for millennials is much higher than it is in the United States, but it’s much lower than for previous generations. According to Central Bureau of Statistics data, the group for which the rate of home ownership declined most sharply from 1997 to 2015 was families in which the head of the household was under 35. In 1997, 68.7% of these families owned a home; in 2015, only 55.3% did. These figures would seem to show that Israel became more like other countries, with more people renting rather than owning their homes. But in light of Israel’s underdeveloped home rental market, what this means is that young Israeli families are spending more on housing.

According to Yaron Hoffmann-Dishon, a researcher at the Adva Center, home ownership has become almost “mission impossible” for Israeli young adults without significant family resources, especially in areas with high demand. “In terms of income level, the greatest decline in owner occupancy is in income deciles 4 through 6: in other words, the group that is least likely to live in a home they own is young middle-class couples, the same group that took to the streets in the social protests of the summer of 2011,” he said.

“In many countries, it’s commonly accepted that housing costs should not exceed 30% of the family’s income,” says Hoffman-Dishon. “In Israel, many people break this ‘rule.’ In 2017, 27.4% of households spent more than 30% of their income on housing, and many of these households are in the lowest income percentiles. In the lowest income decile, the average spending on housing was 54% of household income, and in the second-lowest decile it was 40%. In the third and fourth deciles it was 34% and 32%, respectively. Even households in the fifth and sixth income deciles spent close to the reasonable ceiling, 29% and 28%, respectively,” Hoffman-Dishon says.

The reason, he says, is not only the decline in the home ownership rate for young adults. “The great increase in rental costs in the past few years are also a big burden on young families,” he says.

An analysis by Labib Shami, a senior researcher at the Taub Center for Social Policy Studies in Israel, showed that millennials are overrepresented in the lower income levels and underrepresented in the highest levels (see chart).

According to his figures, even though Gen Y accounts for 35.3% of employed Israelis, they represent 47.8% of the lowest income decile and are overrepresented, in comparison with their percentage in the population, in each of the four lowest income deciles. In the fifth and sixth deciles their representation matches their share of the population, but they are underrepresented in the top three deciles, in increasing amounts. Shami notes that people aged 55 to 65 account for no more than 15% of Israel’s population but 29.4 of the highest income decile, double their representation in the population.

Live today, spend today

Their overrepresentation in the lowest income levels doesn’t mean that Israeli millennials are without means. While their American counterparts are drowning in debt and as a result find it difficult to obtain credit, Gen Y Israelis are spendthrifts. “The ability of members of this generation to make big-ticket purchases such as a home is less than that of previous generations, so they live with zero or an overdraft” in their checking accounts, says Lior Frenkel, chief product officer and partner at Jolt, an Israeli startup that has built an educational system targeting millennials. “People say to themselves: I won’t be able to buy a home even if I save for it my whole life, so I’ll spend money and enjoy life,” he says.

Frenkel, a member of Gen Y himself who specializes in the future of the labor market, has identified two very different lifestyles among Israeli millennials: “On one hand, you see a lot of people who try to replicate their parents’ algorithm: to save money and buy an apartment, counting on its value to rise so that after many years of paying off the mortgage their lives will work out. They expect to be ‘set’ by age 40 or 50,” he says, and in his opinion they are fooling themselves.

“These guys take on a 30-year mortgage with the deposit coming from their parents. On the other hand are those whose parents don’t have a million shekels ($280,000) to give them. They live with their parents for as long as they can, and then they rent for many years, and they see no hope of being able to buy a home. They won’t move away from wherever they’re living, because that would be seen as a decline in living standards. Gen Y isn’t willing to do that, to reduce their standard of living. They say, ‘In any event we won’t be able to afford a home, so why not live it up.’”

David Kochmeister, the CEO of Paamonim, a nonprofit organization that provides financial advice and recovery programs to families and individuals and operates financial education programs, backs up Frenkel’s thesis. He says that many millennials seek advice and help from the volunteers of Paamonim.

“We encounter two groups in this connection,” says Kochmeister. “One is middle-class families with young children, usually with two parents who work, and they don’t handle their finances correctly. They can’t understand how it is that they both have decent jobs and they still can’t make it through the month. We’re very familiar with this group. But in the past year, year and a half we’ve also been seeing young couples without kids, mainly from the greater Tel Aviv region.”

Kochmeister says some of the people who come to them work in high-tech with relatively high salaries, and that Paamonim developed a special service for this group after identifying an unmet need. “These guys have no problem creating Excel spreadsheets and the like. They also make a lot of money, but they waste it on themselves. They realize they’re not making good economic decisions, so they schedule a single meeting with one of our coaches, who sets them right and shows them the Paamonim model. They learn quickly.”

Among the “spendthrifts,” says Kochmeister, are singles as well as parents. “A couple can earn 35,000 shekels a month, but they have no plan or spending priorities. They don’t know what they should or shouldn’t do. They have money, and if they want to go out for an evening then they go out. They can spend 800 shekels on an evening out and they don’t feel that it was at the expense of their future. At first I thought the most important thing was to warn them about the future, because in high-tech you can lose your job in 10 years, but the danger is now: They take out one loan, and then another loan.”

Relying on parents

Frenkel raises another aspect of millennial finances. “The reliance on parents is very noticeable,” he says. “People continue to live with their parents for a long time, and the parents support it, willingly or not. One of the reasons is that renting would cost a lot, so the parents tell themselves it’s better if my child stays with me rather than paying rent, and saves up for a mortgage deposit.” The official figures bear this out. According to the 2018 Social Survey of the Central Bureau of Statistics, one out of three Israelis aged 25 to 34 still lives with their parents.

The Deloitte study mentioned above also offers an interesting view on the perspective of Israeli millennials. According to figures the international consulting firm gave to TheMarker, they have a greater desire than their counterparts abroad to get rich. No less than 72% of Israelis in this age group who responded to a survey said they hoped to do so, compared to an average of 52% in other countries that were studied. That said, many Israeli millennials are pessimistic about the likelihood of fulfilling this dream, with only 56% saying they thought it was attainable, compared to a worldwide average of 60%.

Israeli millennials are pessimistic about other things, too. Only 13% think Israel’s economic situation will improve — far below the global average of 26% — and just 9% think the country’s social situation will get better, much less than their not terribly optimistic counterparts overseas. On average, 22% of young adults around the world expect the social situation in their country to improve.

Maya Imberman, head of human capital strategy and operations for Deloitte Israel, says the concerns of Israeli millennials are different from those of their age cohort overseas.

“Abroad, they worry about climate change and natural disasters, in Israel it’s terror as well as corruption in business and politics,” she says. “The main concerns of Israelis in Generation Y are first of all terror [a concern that is unique to Israeli millennials], in second place corruption and in third place education and skills — topics that don’t even appear on the list of concerns of young adults abroad. The same is true for what’s in fifth place — concern for a lack of economic growth.

Noam Manella, a researcher of digital consciousness who has worked in the field for years, is not shocked by these figures.

“Have you ever seen a group of young people with money? Were we young people with money? Young people are poor by definition, working in crappy jobs, studying, getting by, going out. I don’t see the big novelty in this,” he says. Manella says the issue is more complex because of Gen Y’s circumstances.

“They’re more aware of money. They live in a world of Zap,” referring to a popular Israeli price-comparison website, “so comparing prices is an integral part of the buying process for them,” he says. “They mainly buy online, so they have lots of possibilities for buying at low prices, which we didn’t have. Globalization works in their favor,” he says.

Manella believes that millennials are also less worried about their economic situation. “They’re less driven to earn because they live with their parents, who support them and provide them with food, a roof over their head and even a car. That allows them to easily quit a job as a waiter, nothing will happen to them if they don’t earn anything for a while. They have a safety net that we never had,” Manella adds.

Despite their great sensitivity to prices, Manella says, millennials are willing to pony up when they want to. “You have to give them the biggest possible range of prices, from ‘basic’ to premium. You have to sell them a world that’s cheap and high quality. From that perspective a brand such as Carolina Lemke, for example,” referring to the popular Israeli eyewear brand whose “spokesmodel” is Israeli supermodel Bar Refaeli, “is doing the right thing when it does premium marketing for a basic product.”

Eldad Weinberger, Deputy CEO at McCann Tel Aviv advertising agency, is in no hurry to “wise up,” at least in regard to Israeli millennials. “1.8 million people are a great buying power,” he says. He recalls that according to Central Bureau of Statistics figures, they earn an average of 18,000 shekels per month per household, and Generation X, which precedes them, earns only 3,000 shekels more. He is also in no rush to agree with the idea that Gen Y is gambling with its future. “In Israel the savings rate for age 24 and up is 15%, and for Gen X [born between 1961 and 1980], it’s around 20%,” Weinberger says.

He proposes a different angle: “Gen Y is the first generation of digital natives,” as opposed to the digital immigrants who preceded it. The marketers must adapt the experience they are offering to this generation, whether in banking, aviation, fashion or retail. It’s a generation that is forcing the marketers to advance and to disrupt their own models, and as a result it has enormous significance on the marketing level,” Weinberger says.

Imberman likewise does not recommend that marketers ignore Generation Y. “Even if the baby boomers have more money, the millennials have influence,” she says. “They are ‘influencers’ in the world of social media and they influence the population and consumer goods in a general manner.”