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According to CNBC’s Millionaire Survey, millennial millionaires are temporarily putting off major purchases as inflation and interest rates rise.
Nearly half of the millennial millionaires claim that higher borrowing costs are making it difficult to buy a vehicle. 44% also believe that higher interest rates are making it harder to purchase a house. Over a third of respondents said that inflation has made it difficult to plan for a vacation or trip.
CNBC Millionaire Survey surveys people with investable assets above $1 million. It shows that rising borrowing costs and inflation are driving up wealth. While inflation is most severe for the lower-income and middle-class, rising interest rates are starting squeeze more affluent consumers, especially for large-ticket items.
According to the survey, millennials are three times more likely than their baby boomer counterparts to cut back on large purchases.
George Walper of Spectrem Group, who conducts the survey together with CNBC, said that “the millennial millionaires clearly are dealing with something else they’ve never encountered.” “They are now changing their spending habits and behaviors as a result.”
Spectrem Group, the survey, and respondents born between 1948 and 1965, who are currently 40 years or younger, are considered millennials by Spectrem Group. Baby boomers were those who were born between 1948 and 1965 and are aged 57-75.
Rising rates and inflation have created two distinct but related spending restrictions for affluent consumers.
Inflation has increased the cost of luxuries like dining out, hotel rooms, plane tickets, and even certain monthly subscriptions. According to the survey, 39% have cut back on dining out due to higher inflation. 36% have reduced their vacations and 22% have decreased their driving.
The Federal Reserve’s interest rates hikes have increased borrowing costs, particularly for homes and cars. Wednesday’s increase in the benchmark rate by the central bank to 1.5%-1.75% was announced by the Fed. Another hike could occur in July.
Two-thirds said they are less likely than one year ago to borrow money due to higher interest rates. This compares to 40% for baby-boomers.
44% of millennials said that higher rates caused them to delay buying a home. This compares with just 6% for baby boomers. Nearly half of millennial millionaires said they are delaying purchase of a car because of higher rates — more than double the rate of baby boomers.
Millennials are key drivers of growth in sales for both homes and vehicles.
Walper stated, “Millennials, just like everyone else, are finding that the mortgages that they were looking at in Jan are now more than twice their price.”
CNBC’s Millionaire Survey was done in May before the Fed’s latest rate increase. It surveyed approximately 700 respondents who said that they are the financial decision makers or share in financial decisions within their households.
Millennials seem more optimistic than older millionaires about their investments. However, 55% said that inflation would last less than one year, compared to nearly two-thirds for baby boomers, who predicted it would last at most a year or two. 48% of millennials polled said they plan to purchase more stocks as inflation accelerates. This compares with 11% among boomers.
Millennials are also more sanguine about inflation’s impact on their stock returns: Nearly 90% of millennial respondents are “confident” or “somewhat confident” in the Fed’s ability to manage inflation — a stark contrast to the 38% of baby boomers who are “not at all confident.”
More than 70% of millennial millionaires think the economy will be stronger, or even “much” stronger by 2022. This compares with the two-thirds who believe it will be weaker, or “much less”, according to boomers. Millennials also said asset markets will end the year higher than 2021 levels — a bullish show of confidence with the S&P 500 down 20% for the year so far.
58% of millennial millionaires expect asset markets to end the year higher than 5%. 39% anticipate double-digit gains. However, 44% expect the market will decline by double digits according to millionaire boomers.