Millennials are the largest living generation in the United States, providing them with a guiding influence over the economy. And fortunately, despite cultural misgivings from some critics, many financial experts applaud this generation for its strong personal financial habits. They point to millennials’ tendency to save more than previous generations, value a work-life balance and spend more on experiences than objects—all while balancing massive student debt and historically low wages.
So what can we learn from these financial priorities? To understand what makes millennials tick financially, we set out to measure how satisfied they are with their purchases. Or, more precisely, to see which expenditures they regretted the most.
As behavioral economists, we know that regret is a negative reinforcement that spurs people to self-correct. It’s infuriating to get your car towed, right? But it also means you’ll become more vigilant about reading parking signs in the future. Similarly, regretting a purchase is often the most direct way to avoid making the same type of purchase again. As with a film negative, by knowing what millennials regret spending money on, we can also see what they consider good financial behavior.
To do this, we partnered with the personal finance app Qapital to build a tool that measured people’s level of spending regret. Using that tool, we asked people 20–36 years old who had already voluntarily linked their bank accounts to Qapital to rate their expenditures.
So what did we find? Here are the four golden rules of personal finance as practiced by millennials.
Spend on Enrichment and Others
In the study, we measured what types of purchases were most pleasing to people and when they made the purchases they were most pleased with. For the former, five different types of purchases generated a satisfaction level of 75 percent or above (in order): community, health care, utilities (including rent), arts and entertainment, and education. Overwhelmingly, these all have to do with self-preservation or enriching oneself.
At the same time, millennials were much more content with purchases made midweek and in early December. From this, we can infer that purchases made for others (holiday season) bring more pleasure and that people tend to prefer those purchases made midweek (Wednesday had the highest satisfaction rating) over those made on the weekend, when we might buy things more impulsively (this is explained more fully below).
While this doesn’t mean we should buy everything on Wednesdays in early December, it does suggest that we can derive satisfaction most when buying for others, when enriching ourselves, or when making thoughtful and deliberate purchasing decisions.
Put the Essentials on Autopay
Millennials in our survey were generally about 10 percent more satisfied with recurring transactions compared to non-recurring ones. This is particularly high for purchases like convenience, debt repayment and health care.
One reason for this is because humans are great adapters. Our first experience of something is novel and interesting, but after several similar experiences the novelty and our attention wane until we no longer have the same response. In the same way, more noticeable transactions are more regretful.
By setting up automatic payments for recurring and relatively stable transactions like rent, insurance and auto payments we can discount the financial pain of those payments and become more satisfied with them as regular occurrences. On the other hand, make the payments you’re likely to regret—another round of drinks at the bar or a fast-food stopover—more obvious and novel by paying in cash.
Limit Impulse Buys
Just as the expenses necessary for living—rent, health care, groceries—reside near the top of the satisfaction results, so do those more optional purchases fall to the bottom. Millennials rate bar purchases, digital subscriptions, convenience store buys, coffee shop expenses, restaurant visits and fast-food purchases as their least satisfying expenditures. Only bank fees rate lower.
These types of things can often be those purchased on weekends, and such purchases also showed a high degree of regret. We can begin to reason that millennials take far greater pleasure in making responsible, deliberate and necessary purchases over spontaneous, frivolous ones.
How can we avoid falling victim to those spur-of-the-moment buys? Make “cold state” decisions removed from the heat of the moment. Determine on Wednesday or Thursday how much you want to spend on the weekend, and then have cash on hand to pay for it. This can limit your reactionary spending and ensure greater levels of satisfaction.
Second Guess the Small Stuff, Don’t Rationalize the Big Buys
Across all types of purchases, millennials were less satisfied with smaller purchases than larger ones. We found that the average person reported higher satisfaction for purchases taking up a larger portion of his or her monthly income.
Why do we regret smaller purchases more? People often look backwards to justify their decisions rather than making decisions based on sound reasoning and evidence. If we spent a lot of money on something that we didn’t like, we rationalize ourselves into believing that we must have made a good purchase because it was an expensive purchase.
So the lesson is twofold: 1. Question the small purchases. Just because that latte only costs $4 does not mean it’s inconsequential or won’t bother you later. 2. Research the big purchases. Instead of rationalizing them away after the fact to justify the expense, do your research and make an informed decision. Your happiness will thank you on both counts.
Special thanks to MetLife Foundation for funding this research. The Foundation aspires to help people build a better tomorrow through access to the right financial tools and services.