How inflation is affecting millennials

Explosive price hikes are altering this generation's plans.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

Key takeaways

  • Prices on consumer goods have spiked more than they have in nearly 40 years.
  • This is the first time millennials are experiencing such high inflation.
  • Young people can't afford to spend the way older generations do, spurring lifestyle (and life) reevaluation.

After working remotely from Latin America for a year and a half, Corritta Lewis returned to the US in December 2021. Arriving in Warren, Ohio, she immediately noticed the jump in the cost of living since she, her wife, Mea Hooks, and their 3-year-old son had left. "Everything was up—the cost of rent, the cost of groceries, the cost of gas," says the HR systems analyst and cofounder of the travel blog It's a Family Thing. "It was astonishing to us."

The couple had gotten used to buying inexpensive fresh foods for their son while abroad. "We could get 2 or 3 pounds of strawberries for a dollar," she says. "In the US it's hard to find affordable food, and Mea and I have ended up compromising in uncomfortable ways," like sacrificing a healthy diet to ensure their son has one.

Their experience reflects a nationwide trend. The Consumer Price Index (CPI) leaped 7% during the 12 months through December 2021—the fastest 1-year increase in almost 4 decades—pushed up by both surging consumer demand and pandemic-related supply chain disruptions.

For the first time in their lives, millennials are feeling rapid inflation's effects—and in some cases are being forced to reassess their future plans.

Fidelity Smart Money. Feed your brain, fund your future. Subscribe now to the Smart Money newsletter.

Inflation's especially tough on millennials

Younger people tend to spend differently than older generations. Those differences may make the current bout of inflation particularly painful for 20- and 30-somethings.

For example, younger consumers are more likely to buy used cars, because they're cheaper than new ones—but used car prices soared more than 37% in 2021.1 Car rental companies typically sell their cars after using them for a year, but because they largely stopped buying new vehicles at the beginning of the pandemic, they put very few 1-year-old models on the market in 2021. As a result, the supply of used cars tanked in 2021 even as demand jumped.

Millennials are also more likely than older consumers to rent their homes, especially in the face of an immensely competitive homebuying market. Many are struggling with the almost 18% national increase in rents last year.2

Take Krissy Hadick, an archaeologist for the state of California and a parenting blogger. Last year her landlord sold the San Luis Obispo, California, home she and her family had been renting. Now they pay $300 more per month for a comparable house.

"Looking for a place we could afford was stressful," she says. Even with careful meal planning and nixing date nights and the babysitting costs that go with them, "it's harder to save to buy a house down the road." If the cost of living in San Luis Obispo and surrounding areas continues to rise, the family may move out of state to somewhere lower priced, such as Colorado, where Hadick's family lives.

When slashing expenses isn't enough

Marissa Brenton, a freelance business consultant in Waterford, Michigan, also has cut back spending on discretionary items, like dining out, and she closely monitors her driving to keep gas expenses down. But she is still having a hard time. Food prices, which rose more than 6% in 2021, have been a particular pain point. "I thrift clothes and cook most meals at home," says Brenton, "but I can't keep up with the rising costs of food and transportation."

Brenton echoes Hadick's concern that inflation has made it hard to save. "In 2021, I didn't put a single dollar away for retirement savings, the first year ever I haven't been able to contribute," she says. Before that she'd been saving 10% of her income in her 401(k), anywhere from $300 to $400 a month. "It's discouraging for people who are trying to be independent when things are so unaffordable."

Now she's trying to boost her income by dipping into savings to buy into an eco-friendly floor-cleaning franchise. "I have learned that to live comfortably you have to have multiple streams of income," she says.

Business owners take a hit

Inflation presents special challenges to millennial entrepreneurs. Andrew Tjernlund runs a heating and air conditioning manufacturing company in White Bear Lake, Minnesota, and says inflation has affected every aspect of his business. "Most of our suppliers have increased their prices at least 3 times over the last 12 months," he says.

Like many employers, he's having to pay more to keep and attract workers too. Tjernlund says wages are up 20% to 25% at his company. Businesses nationwide expect to increase their salary budgets 3.9% in 2022, the highest rate since 2008.3

Customer contracts limit Tjernlund's ability to raise prices to offset cost increases. Instead, he's tapped a line of credit to buy and hold more inventory to protect against the possibility of future product price hikes and possible shortages. "Price increases were approaching 30%," he says. "I have a healthy line of credit that charges roughly 4% interest, so this was a good use of that."

Brian Mellin faces similar problems at Joe 2.0 Coffee, a Saratoga Springs, New York-based seller of coffee enhanced with herbs and amino acids. Mellin, the company's founder and CEO, says rising coffee prices have cut into margins. He notes that larger companies can hedge against rising prices by buying futures—agreements to buy or sell a commodity, like coffee, at a set price on a predetermined date. "That's not possible for smaller companies," he says, pointing out that a single coffee futures contract typically covers 37,500 pounds of beans, far more than Mellin's small business can process.

Joe 2.0 is planning to raise their prices around 15% to offset production costs, and Mellin has pushed back his timeline for the company to turn a profit. He worries that if inflation continues at its current rate for another 6 to 8 months, he may have to delay growing the business, including a paid advertising campaign.

Adjusting future plans

Millennials expect inflation to keep rising.4 To rein it in, the Federal Reserve (America's central bank) is expected to continue raising interest rates throughout 2022 while wrapping up programs from earlier in the pandemic designed to stabilize financial markets and the economy. In general, that's because rising interest rates leave fewer people able to borrow money, and as a result with less money to spend. Also, as interest rates climb, people tend to save more and spend less because returns from savings are higher. With less disposable income being pumped in, the economy slows and inflation decreases. However, too large a drop in demand could send the economy into recession.

In the meantime, millennials are adjusting their plans. "At this point I'm trying to think about ways to be more self-sustainable," says Brenton. "I've got to be particular about what I choose to spend money on." For example, in lieu of costly vacations, she and her partner have been exploring local state parks, using outdoor gear they already had.

It's not all bad for millennials. Younger workers are more likely to see their wages rise on pace with inflation, unlike older workers.5 In fact, Lewis asked for a raise—and got one. Still, inflation helped spur the family's decision to head back overseas. "We make a decent living, but we want to be better able to afford our lifestyle," she says, including healthy food, traveling, and enough money left over to add to their savings. "We've found we can do that better when we're outside the United States."

How to stay afloat while inflation is high

  • Make sure your expenses aren't more than your income. Consider putting all your expenses on 1 credit card, rather than spreading them over many, to more easily see the full picture of what you're spending.
  • Review subscriptions that are automatically being charged to your card each month and cancel what you don't use.
  • Reevaluate what's truly essential versus discretionary in your expenses. For instance, consider cutting down on dining out and traveling.
  • Avoid accumulating credit card debt because that's a deep hole to climb out of.

Next steps to consider



Get more Fidelity
Smart MoneySM


Subscribe to our weekly newsletter.



Should you rent or buy?


Run the numbers with our handy calculator.



Special report: Inflation


Learn how to help protect your money from rising prices.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.

Subscribe to Fidelity Smart Money

Find out what the news means for your money, plus tips to help you spend, save, and invest better—delivered to your inbox every week.