Financially apathetic Millennials may be the U.S's biggest liability.

Seriously, it may be the biggest issue for the generation of Americans under 40 years old.  Apathy. Not really caring about much. Statistics are already showing that the millennial generation does not look to live life the same way as their parents or grandparents. Gone are the dreams to own a home. Too many of them either were burned in the housing bubble of 2008 or witnessed friends and family get burned.

So what does this mean? How does it translate to the world of Economics and Personal Finance? We have heard time and again that Millennials, (those born from 1982-2002), don't care to save that much, especially for retirement. They prefer to buy tech items like ipods, ipads and google glass. What we have not heard a lot about is how NOT spending money, especially on certain big ticket items, could hurt the economy. To further explore this topic lets take a look at some recent articles on the issue.

Stephen Gandel writes in a Fortune.com article, "not buying a house, not even being able to afford one, might be the best thing that ever happened to Millennials, financially speaking"  Well this is an interesting argument and Stephen makes some good arguments on how renting versus buying is good for those in the generation of whom we speak.  Is renting a better option for Millennials? It may be, but I can tell you this: it sucks for the rest of us! It sucks for the economy and quite frankly for all of the Solialist, leftist, markist redistribution folks; it is contributing to wealth inequality. That's right people! The very group whom are the biggest participants of the 99% movement are screwing themselves.

Ok, you say. Why do I care? How does this effect me? Just let the little buggers go out and screw themselves and blow all their money. Well....they are not blowing it in the standard or usual way to help our economy. By not buying cars, houses and other big ticket items their parents did at this age, they are not pumping money into the economy the way Demand Side economists would like.  When 30% of 19 year olds do not have a license it can keep them from buying a car. A recent survey from American Student Assistance, (ASA), tells us that 63% of respondants say that student loan debt is keeping them from buying a car and 47% said it was keeping them from starting a small business. That small business thing really bothers Supply Side economists like myself. Because, you know, small business's create jobs! Good paying jobs!

Allow me to sum things up: 

1) Less people buying cars means less jobs at OEM's (original equipment manufacturers), like GM, FORD and Chrysler,  as well as car dealerships, mechanics, aftermarket stores, etc.  The automotive industry, including dealerships, accounts for approximately3.5 percent of U.S. gross domestic product. In addition the auto parts industry accounts for 2.3 percent of the nations GDP.

2) Less people are buying houses and that means less jobs for real estate brokers, construction workers and little guys working at Home Depot. Private Residential Investment accounts for 5% of GDP according to the Bureau of Economic Analysis.

3) The economic impact of reduced purchasing by millennials breaks down like this:  
        

• U.S. GDP in 2013 was 16.8 trillion dollars
• 6.8% of GDP (Automobiles) reduced by an estimated 3.5% = a $39.98 billion dollar hit to the economy.
• 5% of GDP (Housing) reduced by 7% = a $58.8 billion dollar hit to the economy.

But doesn't Astutefinances.com think that the rich and small business owners create jobs? So why are you caring about Demand Side economics? Why are you guys so interested in consumption all of the sudden? We do think small
business owners and the rich create jobs, and that is why we also see something else very interesting happening here. The transfer of wealth from those in the Millennial generation to those in generation X and the Baby Boomers. That is,
with Millennials choosing to rent more in the housing market as well as to find alternative means of transportation, they are leaving money on the table. No longer are they building equity in a home as previous generations did. Because they have massive student loan debt, (about 30,000 per person average), they are forced to pay on that instead. Investors are picking up real estate at depressed prices and renting it out to these individuals in the 18-35 year old range. This, as well as the creation of companies like Zipcar and Uber, means that less people in the 18-35 age range are building wealth while a few in that age range and many in the 36-65 age range are building wealth.  It is, however, not a big 99% vs. 1% conspiracy. It is simple economics. And when it comes time for these individuals to support the economy by themselves in 10-15 years......they will not have the requisite assets to do so.

The questions of the day are, why do we want to cut taxes on everyone when we need more money for capital improvements such as schools, roads, and such? Why doesn't the government do more "stimulus"? Why am I struggling soooooo much?

Below I compare the economics impact of "Trickle-Down Economics" of the Reagan Administration as compared to the Keynesian economic policies of the Obama Administration.

What is Supply-Side or Trickle-Down economics?  It is a policy of cutting taxes as a way to stimulate growth in the economy. Why do the rich seem to benefit more? According to Arthur Herman: "It's because people with higher incomes are more likely to capitalize their savings as investments aimed at bringing a lucrative return, whether it's
expanding their own business (as when a dry cleaner opens a new store and hires new workers to run it) or someone else's.

Here are some other stats to show that Trickle-Down economics did work in the 80's and 90's.

During this seven-year recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third-largest in the world at the time, to the U.S. economy.  In 1984 alone real economic growth boomed by 6.8%, the highest in 50 years.  Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20%.  Unemployment fell to 5.3% by 1989. In addition, real per-capita disposable income increased by 18% from 1982 to 1989, meaning the American standard of living increased by almost 20% in just seven years.  The poverty rate declined every year from 1984 to 1989, dropping by one-sixth from its peak.  The stock market more than tripled in value from 1980 to 1990, a larger increase than in any previous decade.,(Peter Farrara)

Many people think that for one person to have more money someone else must have less. That is, that many people believe the rich are rich at the expense of the poor. This, however, is just not true. 

In the video below you will see Milton Friedman speak about how in the 19th century this was untrue. It is called the Robber Baron Myth. It is also untrue today.

Well here we go again. The CBO, (Congressional Budget Office), came out with a report that says raising the Federal Minimum Wage to $10.10 an hour would lift 900,000 people out of poverty. Awesome! Less poor people! Well, there is one problem. There are 45 million people that will be below the poverty line this year so this is barely a 2% decrease in the amount of people in poverty.  Why not do it you ask? Because that same report says raising the minimum wage to $10.10 an hour would cost 500,000 jobs!. That means there will not be as many people available to pay for the goods these minimum wage workers are producing.

We had an earlier post that explained in detail how raising the minimum wage would cost jobs

We would love to hear your comments on this! Make sure you respond below

So what is Time Value of Money? It is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.  What this means is that, as long as money can/will earn interest, you would prefer to receive it sooner rather than later.

So, lets look at it this way. Everyone would love to win the lottery, right! The aforementioned principle can be used to determine if it is a better option, (for you), to take the lump sum payout or receive 20 yearly payouts.  The big number you see on the billboard that says what you will win is the amount before taxes and based on 20 equal payouts over the next 20 years. This is reffered to as an Annuity.