Who needs a mortgage when you can have Gucci, Dior, and Chanel? Some members of Gen Z are satisfying their insatiable appetites for high-end luxury goods while keeping their savings accounts slim. Adults between the ages of 18 and 29 are increasingly becoming the largest segment of luxury consumers, even as more than a third live with their parents. One Rutgers–Camden researcher believes rising home costs and changing cultural influences may be causing young people to embrace different metrics of success.
“Luxury goods are often purchased as a form of conspicuous consumption,” said Nathan Fong, associate professor of marketing with Rutgers School of Business–Camden, “It’s a way of signaling one's status, wealth, or taste to others and oneself.”
The trend is undeniable: The number of 18–to-29-year-olds living with their parents has not been this large since the Great Depression. The struggle of young Americans to get out on their own has been well documented in recent years. The increasing cost of getting a college degree has left many with significant student debt. Add to that the fact that fewer new homes were built in the ten-year period ending in 2018 than any other decade since the 1960s, which has created a severe shortage of housing units for sale or rent. Recent spikes in interest rates and general overall inflation have added to the burden.
At the same time, young people have become the fastest-growing segment when it comes to the purchase of luxury goods. A recent report from Bain & Co. noted millennials and Gen Z accounted for 72 percent of the global luxury market in 2022; in 2019, millennials and Gen X made up most of the luxury-goods market. While many may dream of a home of their own, many also seem to be struggling with taking the steps needed to make the dream a reality.
“Younger consumers of limited means may choose highly visible goods, like clothes, handbags, and the newest phone, in part to maximize the appearance of success they can project for their dollar,” said Fong. “Putting that money into getting a place of their own, even if most would consider it a more significant marker of success, would be harder for other people to casually observe.”
Gen Z is facing the largest average income-to-housing-price ratio in of any generation in 70 years. Historically, the average home costs about five times the average household income, with 2022 data showing the average house costing more than eight times the average household income.
While home ownership and strong housing prices usually align with increased consumer spending, there is very little data on how the inability to afford a home may affect consumer spending, apart from the recent increase in luxury purchases by younger people. One thing that may be driving Gen Z to spend? Social media.
“Social media potentially adds fuel to this fire by increasing visibility, allowing people access to see the whole handbag collection, or other luxury goods that you don't take out of the house,” said Fong. "Otherwise 'quiet' consumption is suddenly amplified among their peers when posted to social media, which could also be driving the increase among this age group."
For nearly a century, owning a home has not only been a key element of the American dream, it has also been a primary way Americans create equity and wealth. This may now be shifting. The growth of the luxury goods market among younger generations living with their parents may just be the canary in the coal mine.
Video by cottonbro studio
Video by cottonbro studio
Creative Design: Beatris Santos