Millennials are falling short of their financial goals due to ‘lifestyle inflation’, a recent study has revealed. The research, which involved 4,000 adults born between 1981 and 1996, found that 40% of respondents believed they would have saved more money by this stage in their lives. However, 4 in 10 agreed that ‘lifestyle inflation’, the tendency to increase spending as income rises, has impacted their savings.
Instead of prioritising saving as their earnings increased, many millennials focused on improving their lifestyles. On average, millennials are £25,000 behind their expected savings, with a third admitting to favouring spending over reaching financial milestones. The study, commissioned by first direct, also showed that 30% anticipated higher earnings than their current income, but a third of them chose work/life balance over pursuing a higher salary.
While a quarter of millennials had hoped to be homeowners by now, on average, they are still four years away from buying their first property. Factors contributing to this delay include rising property prices and unstable incomes. Despite these challenges, a significant 73% of millennials remain determined to achieve their financial objectives. 61% of respondents feel they have grown more financially resilient in recent years after facing various economic obstacles.
Carl Watchorn, head of banking at First Direct, noted the challenges faced by millennials and Gen Z savers. He highlighted that tough economic conditions have delayed millennials from reaching significant milestones, but these obstacles have also shaped them into one of the most financially resilient generations.
The research also highlighted common spending trends across all generations, with ‘lifestyle inflation’ affecting everyone. About 32% of respondents treat themselves more frequently with a salary increase, 17% opt for more holidays, and 14% choose pricier trips. Carl Watchorn emphasised that many individuals are prioritising immediate enjoyment over long-term financial savings, leading to higher spending as incomes rise.
The study’s findings underscore the financial struggles faced by millennials due to ‘lifestyle inflation’ and the importance of balancing current enjoyment with future financial security. Despite the setbacks, millennials’ determination and resilience are key factors in overcoming these challenges and securing their financial futures.