1.0 Introduction
This research discusses about the behavioral factors that lead to spending and savings among generation Y. As we are moving forward to the millennium era, the cost of spending is getting higher with today’s Malaysia economic trend is just in a moderate par, but our young generation still have high buying power if compare to other generation. Additionally, the Malaysian Insolvency Department encompassed in an article published by Agensi Kaunseling dan Pengurusan Kredit (2014), with an 11% increase in the average number of monthly bankruptcies from the year 2012 to 2013, an average of 1812 Malaysians was declared bankrupt per month. Furthermore, the report highlighted among the ages of those declared bankrupt, over 47% are young adults aged between 18 to 35 years old specifically Gen Y. Hence, this research is to examine the behavioral factors that affect the spending and savings of Gen Y.
1.1 Problem Statement
Today’s Gen Y are becoming increasingly reckless with their spending habit. They tend to value money less compared to Gen X and baby boomers who are not so much into the materialistic world. As the standard of living in Malaysia has improved noticeably, the young generations are granted with greater liberty to shop and make their own consumption choice, as a result, Malaysia faced changes in lifestyle and spending trends. Most of today’s young generation have a short-term orientation and in a lot of ways are protected from the realities of the real challenges that are happening in the world. This condition is alarming because it will certainly result in the young generations’ inability to assess the real condition. This situation is true based on the increase in obtaining credit cards, which caused many issues of bankruptcy due to overspending in credit card usage among the young generation. (Idris et al., 2013). In addition, based on the research study by Visa (2011) by gathering the opinions of respondents aged between 18 to 28 across 11 Countries, the result reveals that most of Gen Y are ambitious and money oriented as more than 80% of them want to earn as much money as possible to allow them for enjoying a better life experience and can get wherever they want in life.
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1.2 Research Objectives
The study that will be conducted will be focused on the areas, context, and content in terms of by setting the objectives of the research. The objectives that the research will be focusing more are stated as below.
- To determine the consumption and spending patterns of Generation Y
- To determine the level of saving and the forms of saving performed by Generation Y
- To recommend the best way to encourage Generation Y in managing their savings.
2.0Literature Review
2.1 Generation Y
This generation of this group grew up in an environment of fast-paced change. There was full employment, dual-income households with increasing employment for women, and increasing awareness and respect for cultural diversity. They were also born into an era of electronic, technological, and wireless society where global boundaries have been blurred (Williams and Page, 2010). According to Martin (2005), the Generation Y cohort is technology savvy, independent, self-reliant, and entrepreneurial thinkers. Generation Y has also been described as well-educated, confident, passionate, upbeat, and socially conscious with high integrity (Geyzel, 2009). Halstead (2006) in her research has identified three characteristics unique to this and with these three characteristics may be the factor that influence of Generation Y's saving consumption patterns. These characteristics are greater racial and ethnic diversity, more personal independence than prior generations due to the Internet and the rise in divorce, and greater optimism than Generation X about money and job security.
2.2 Parental Socialization
Center for Financial Security (2012) mentioned that parental teachings on money management, mainly focusing on the pocket allowance given, will help increase the financial awareness and the financial literacy of a child. Thus, Vincent-Wayne Mitchell et al (2015) highlighted that parenting encourages verbalization is positively related to Generation Y's attitudes towards online unethical activities.
2.3 Peer Influence
Referring to Montandon (2014) stressed that Generation Y are frequently labeled to be easily influenced by peers inspiring that they can be easily pretentious by peer pressure when derives to decision-making. Vincent-Wayne Mitchell et al (2015) stressed that young people also learn from direct and indirect interaction with peers through discussions, rulemaking, reinforcement, and modeling but also integrated their social lives with electronic gadgets. Other findings from Montandon (2014) mentioned about social influence with closer peers have a significant influence in the risk attitude of Gen Y in terms of physical and social distance.
2.4 Self-Dominance
William Andrews Tipper (2014) in the article Future Savings Challenge specifies that Gen Y approaches financial decisions with a high degree of caution with the mindset of a strong association between finance and risk. In consequence, Gen Y has a high tendency to search for advice before making major financial decisions. Despite this, only a small proportion use financial advisers to guide their choices. Instead, they turn to those they trust for guidance such as their parents, friends, and partners.
2.5 Money Habits
Brian Honigman in his article How Millennials are Shopping (2013) reported that by 2017, Millennials are hyper-social, and continuously connected to social media and will have more spending power than any other generation. This article also mentioned that 84% of Millennials depend on user-generated content has some influence on what they buy and 51% from the survey showed that Millennials trust to make a purchasing decision based on consumer opinions on company’s websites rather than recommendations from family and friends.
2.6 Spending and Savings Behavior of Generation Y
In a study conducted by Visa USA Inc., (2007) it stated that by 2015 Gen Y will account for approximately USD2.45 trillion in annual spending. Moreover, Generation Y consumers are very likely to spend their cash as quickly as they acquire it, usually on consumer goods and personal services (Der Hovanesian, 1999). These consumers also have a wide-reaching social network that influences their buying decisions. Such vast networks are basically changing the way in which Generation Y shops. Water’s study stated that word-of-mouth influence no longer comes at a party or family gathering but from an extensive band of members of their online network. According to social learning theory, spending behavior can be seen as learned behavior often transmitted by parents and other influential individuals. Therefore, mainly passed from generation to generation Carrier and Maurice, (1998). Lunt and Livingstone, (2000) indicated that saving has important cultural meanings, so understanding socio-economic practices, moral judgments, and the everyday understandings and attributions of the people involved is essential in understanding how people calculate benefits from consumption or saving decisions.
3.0 Conclusion
In this section, the conclusion of the summary of the findings in the literature review will be discussed and all the possible recommendations and implications based on the study on the selected articles will be list out.
3.1 Summary of Findings
From the article's findings, there are mainly 4 factors that lead to the spending and savings of Gen Y. First, parental socialization as mentioned by Vincent-Wayne Mitchell et al (2015) highlighted that parenting encourages verbalization is positively related to Generation Y's attitudes towards online unethical activities. Not only that, it is also supported by the Center for Financial Security (2012) which mentioned that parental teachings on money management, mainly focusing on the pocket allowance given, will help increase the financial awareness and the financial literacy of a child. This can conclude that parents are the major factors in the family institution as they can encourage their children in terms of spending and savings. Good encouragement of money management will give a positive impact to their children's spending and savings habits.
Secondly, the factor of peer influence as stressed by Montandon (2014) where Generation Y are frequently labeled to be easily influenced by peers inspiring that they can be easily pretentious by peer pressure when derives to decision-making. Moreover, this is also supported by Vincent-Wayne Mitchell et al (2015) that highlight young people also learn from direct and indirect interaction with peers through discussions, rulemaking, reinforcement, and modeling but also integrated their social lives with electronic gadgets. From these findings, social influence with closer peers have a significant influence in Gen Y spending and savings behaviors. If a teenager has a peer that has a high spending habit, then it also will affect them to spend more. If compared with parental socialization, a teenager will spend more time with their friends rather than their family in a day. Hence, it is possible that peer influences give a high impact on spending and savings.
Third, the self-dominance factor mentioned by William Andrews Tipper (2014) in the article Future Savings Challenge emphasizes that Gen Y approaches financial decisions with a high degree of caution with the mindset of a strong association between finance and risk. Gen Y has a high tendency to search for advice before making major financial decisions. From the finding, we can say that today young generation always plans for their spending when it comes to major financial decisions. They have a big purchasing power but on the same time, they also have a strong association between finance and risk in their mindset. Again, they will refer to their closest person like their family, friend, and partners.
Lastly, the money habits factor highlighted by Brian Honigman in his article How Millennials are Shopping (2013) reported that by 2017 emphasizes that Millennials are hyper-social, continuously connected to social media, and will have more spending power than any other generation. This article also mentioned that majority (84%) of Millennials depend on user-generated content has some influence on what they buy and 51% from the survey showed that Millennials trust to make a purchasing decision based on consumer opinions on company’s websites rather than recommendations from family and friends. Generation Y consumers are very likely to spend their cash as quickly as they acquire it, usually on consumer goods and personal services (Der Hovanesian, 1999).
In conclusion, the behavioral factors of spending and savings among Gen Y is affected from a family institution, social environments such as peer influence, and self-dominance. These three factors are the main key of young generation's behavior toward savings. Everyone should take part in order to help the generation Y and Millennials nowadays to have good money management and to avoid a financial crisis in this challenging economic era.
3.2 Implication and Recommendation
Major findings indicate that parental socialization, peer influence, self-dominance, and money habits as the most influential factor in the financial planning and decision-making of Gen Y. Therefore, it is very crucial for family and education institutions to enforce financial literacy, particularly at home and school level. Although parents are the main sources of income, the majority of Gen Y are self-dominance in decision-making towards their financial planning, investment, and savings habits.
Generation Y is different from other generation groups therefore one of the recommendations is that banks and financial institutions must understand their needs if they want them as their customers. Banks will need to use an approach distinctly different from anything that they have been familiar. The rational imperative is that as the financial power of Generation Y expands its members will change how financial transactions are conducted together with patterns of spending and saving in Malaysia.
3.3 Suggestion for Future Research
Further studies can be done to correlate the level of financial literacy with self –the dominance factor towards spending and savings habits among Gen Y within the same background. Besides that, it is recommended that future research shall utilize a broader demographic profile of the generation Y respondents as this study was only studying generation Y in one country it is good to have an analysis of Gen Y spending and savings behaviors comparison from one country to another. Furthermore, a qualitative study needs to be conducted for future research to replicate the findings as the judgments about the levels of financial literacy of individuals conducted in this research and it is hoped that the study can enlarge the awareness in the related fields and can be a benchmark for financial literacy research in Malaysia
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