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The BID

Millennials drive megatrends

This week featuring Nora Vonier, Head of Product Marketing for U.S. Megatrends at BlackRock

This year, millennials surpassed baby boomers as the largest living adult generation in the U.S. And that’s not the only shift that’s underway. Millennials also make up the largest working cohort, and they’re the first generation to spend their early lives on the Internet.

Millennials are also driving megatrends – technology, demographics and social change, urbanization, climate change and emerging global wealth. On this episode of The BID, Nora Vonier, Head of Product Marketing for U.S. Megatrends, discusses how.

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    Oscar Pulido: This year, millennials, or those currently aged between 23 and 38, have passed baby boomers as the nation’s largest living adult generation. And this isn’t the only shift that’s under way. Thirty-five percent of the American labor force is millennial, making it the largest working cohort. Eighty-eight percent of millennials live in metropolitan areas. They’re also the first generation to spend their formative years, many of them their entire lives, on the Internet.

    It’s The BID’s one year anniversary and to celebrate, we took at a look at what topics our listeners have liked best so far. Number one: megatrends. Earlier this year, we talked about the five megatrends shaping our future: technology, demographics, urbanization, climate change and emerging global wealth. So we decided to revisit the theme with Nora Vonier. Nora leads Product Marketing for Megatrends in the U.S.

    Today, we’ll talk about how when it comes to these megatrends, there’s one group that’s sitting in the driver’s seat: millennials. I’m your host, Oscar Pulido, we hope you enjoy.

    Nora, thank you so much for joining us today on The BID.

    Nora Vonier: Thanks for having me.

    Oscar Pulido: Well, it turns out it’s our one-year anniversary of The BID and megatrends are a topic that our listeners are really interested in. So we spoke about this topic a few months ago, let’s do a quick refresher. What are the five megatrends and why are we watching them?

    Nora Vonier: That’s a good of place as any to start, so megatrends are the long-term, transformational shifts that are changing the way we live and work. And we’re watching them because they’ll be impacting our economy and society for many years to come. To quickly roll through what they are: first is technological breakthrough. So this is the fact that technology is driving exponential progress really across all industries. Second, within demographics and social change, people are living longer and are adopting more modern lifestyles by the day, and this will change medicine and consumer habits in the future. Third, rapid urbanization. More and more people are moving to cities, which will require infrastructure within them. Fourth is climate change and resource scarcity. This is the increasing demand for sustainability that will advance energy and conservation efforts that we’re hearing about all throughout the news. And last but not least is emerging global wealth. This is the newly affluent consumers that are emerging in Asia and across the developing world.

    Oscar Pulido: And just out of curiosity: when you say them, they sound rather sensible and obvious, but how are these megatrends determined? Who said these are the five?

    Nora Vonier: Yeah. And these trends as you can imagine were not determined lightly. They were a result of a collaboration across the globe, right, so from BlackRock investment teams, researchers, and external clients and partners who are experts in these areas of innovation that we were looking to tap into.

    Oscar Pulido: We can’t talk about megatrends without then also talking about the millennial demographic. This is the cohort of the population that grew up using technology. We know they’re demanding more of the companies they purchase from, they’re raising their voices about issues like gender equality and climate change. It turns out this demographic is actually a big engine of these five megatrends, so talk to us a little bit about that.

    Nora Vonier: You are absolutely right, the millennial cohort is 100 percent impacting these megatrends. I think some of the ways they’re doing so are pretty intuitive, the stereotypes we hear about all the time. But there are some you may find a bit more surprising. So to answer that specific question, let’s take the trends one by one. First, within tech breakthrough, one area that millennials are all too familiar with is cybersecurity. Just five years ago, there was one cybercriminal on the FBI’s Most Wanted list. Guess how many there are today?

    Oscar Pulido: I’m going to say more than one?

    Nora Vonier: That’s a safe answer, and you are trending in the right direction: 42. That’s a large increase. And because millennials have seen and lived through data privacy issues, they’ll want to be a part of the solutions that keep us safe going forward. Within demographics and social change, millennial consumer spending habits are increasingly focused on fitness, health, self-care, and that translates to a global health and wellness market that is worth over $4 trillion dollars, with a T. So this is largely a product of millennials seeing their parents and grandparents living longer, as well as the increasing stress and tax of the busy and always-connected lifestyles that we live. Athleisure would actually fall into that category, which I’m sure you’ve heard a lot about as well.

    Oscar Pulido: Right, right.

    Nora Vonier: Within emerging global wealth, there is no surprise that emerging markets are rising, but what may surprise people is how much the younger populations are influencing that growth. So if you look at China, millennials make up 25 percent of that population and that number translates to about 400 million people. That is more than the U.S. population in total. And this cohort makes up half of the consumer spending that we’re seeing in China alone. Within rapid urbanization, millennials are flocking to once-considered small or mid-sized cities, turning areas into tech hubs overnight. A few of them we’ve heard of in the U.S., you have Denver, Colorado, Austin, Texas. Tallinn, Estonia is another one more globally. And if you think about the preference of millennials for renting over owning, whether it’s your apartment or your car, the barriers to pick up and move are so much lower than they’ve been in the past, people can relocate easier and faster. And last but not least, climate change and resource scarcity. Millennial habits are changing to address the impacts of a changing climate, whether it’s opting to drive an electric vehicle or figuring out how much meat they should be having in their diet. Millennials are considering these things and really not caring if they pay a little bit more – they pay a premium – for this way of life if it’s going to be better for the environment. I think the shift toward plant-based foods is one that is becoming very quickly not a fad, The Economist even dubbed 2019 the year of the vegan. A quarter of millennials actually say they’re either vegans or vegetarians, and being a resident of San Francisco, I can say honestly that I think if you’re a restaurant that doesn’t adjust your business model to cater to that, you may not survive.

    Oscar Pulido: I’m not quite there yet with the vegan or plant-based meat, but I’m also not a millennial; I fall right outside that cohort. So let’s dive a little deeper on, you mentioned urbanization specifically, and I’ve recently read about this term youth-ification. How would you define youth-ification?

    Nora Vonier: You can think of youth-ification as really just the effect that the influx of millennials moving to a new area has, given the incomes that they’re bringing with them and the jobs that they have, that’s really at the highest level of what the term youth-ification means.

    Oscar Pulido: And how would the younger people then moving to the cities impact the economies of those cities?

    Nora Vonier: I think you see it in a lot of areas. The most direct impact is on the makeup of the job market, and what I mean by that is the supply of young workers and the skills and work preferences that they have. So companies will need to adjust how they attract and retain talent, and in some cases, reinvent their business models. So what are millennials looking for? One thing for certain is flexibility. It’s remote working, it’s tech-enabled ways of doing their job and automation. It’s experiential work spaces, whether it’s the co-working spaces, whether it’s the social activities you can have at the office, and it’s flexible hours. Gone are the days of nine to five clocking in and out. Another is purpose driven organizations, and this is becoming more and more table stakes. One recent study showed that more than 60 percent of the millennial population said that the primary purpose of a business should be improving society instead of generating profit. And entrepreneurial opportunities. In the U.S., millennials make up the largest portion of the freelance population. Similar to the search for flexibility, people want that flexible schedule. They have a number of tools at their disposal so they can get in jobs that are contracts, they can have the gig economy activities that we’re seeing. And because of that, you’re seeing a lot of self-employment and people being entrepreneurs who maybe didn’t have the platform to do that a few years ago. When you start putting all these things together, this has a much broader impact on career paths and retirement, which is to say that there is this mentality shift. Millennials today don’t think of retirement necessarily as an end state, it’s more fluid. So instead of working with the goal to one day have a retirement party, sail off into the sunset on your yacht and that’s it, now a lot of people are taking up side hustles, while they are in the job force, or exploring alternative ways to build their wealth. So it’s these three things, flexibility, purpose driven organizations and entrepreneurial activities that are really becoming a trend as younger people are moving into cities and impacting urbanization.

    Oscar Pulido: So it’s clear they’re rewriting the rules of the job market, because you just went through a ton of really fascinating real life, this is what’s happening, right, but what other areas of the economy might be affected other than just the job market by this cohort?

    Nora Vonier: Other areas of the economy that impacted are sectors like transportation and real estate. It may sound boring compared to what we just went through, but bear with me here. So in transportation, the pervasiveness of ride share options has implications for really all existing transit systems, in rural and urban areas. Whether it be from the well-known brands such as Uber or Lyft or whatever the next scooter startup will be that we see in San Francisco. It’s not unlikely that in what, ten, twenty years, it will be normal for us to be waiting for our driver-less vehicles as they roam around the city taking us from point A to point B and we won’t bat an eye. Within real estate, I think millennials’ preference to rent versus buy really means that the housing markets and pricing will fluctuate and change depending on how quickly that shift moves in one way or the other. New construction that will be under way in real estate will also have to appeal to millennial renters from housing units to what amenities that these buildings have and also sustainable urban planning.

    Oscar Pulido: Now as we talk about urbanization, does the effect of urbanization depend on whether a city is located in a developed market versus an emerging market? So do I see the effects of urbanization differently if I’m looking at a city in the U.S. versus a city in China, for example?

    Nora Vonier: Absolutely. I think the biggest difference we see is the speed at which urbanization is taking place. When comparing the countries you just mentioned, there is more infrastructure that already exists in the U.S. when compared to China. So therefore, the investment needed to build and create those growing cities is also going to be a lot higher. Another thing to keep in mind is the population growth in the developed versus emerging world, right. So in cities like Beijing or Mumbai, population growth is in the 20 percent range call it, whereas developed cities, New York, LA, Tokyo, they’re in lower, single digit growth percentages and sometimes in the negative range. That impacts just the sheer scale at which development and overhauling existing areas really needs to be considered. We also have to think a little bit bigger than current metro areas. There are actually plenty of entirely new cities that will emerge that don’t exist today. Take the current news from Saudi Arabia Public Investment Fund which has expectations to create a city that doesn’t yet exist. I think that is pretty fascinating. That will cost $500 billion dollars to build from scratch: something we just thought of seeing in a movie a few years back.

    Oscar Pulido: Nora, you talked about the spending habits of the millennials earlier, so how does this compare to the spending habits of other cohorts? For example, I think we talk about the retired and the baby-boomer population, and we refer to their spending as silver spending, that’s another term I’ve recently learned. So what is the version of that for millennial spending?

    Nora Vonier: To explain a little bit more what silver spending is, since it might be a term that is not as widely used as we think, you can think about that as what the retirees and older demographics are spending money on later in their life. That’s cruises, leisure activities, financial services, retirement planning, healthcare costs, and in some cases, anti-aging products; and then you flip towards millennials, right? It’ll reflect the fact that we’re in a young age bracket, but it will also reflect the fact that we’ve grown up in a generation that is just so tech-enabled from day one. So in practice, this looks like paying for experiences, traveling, dining out, entertainment activities like concerts, interactive classes. Those are all things that millennials derive joy from versus just a physical good. Subscription services is another area. Netflix, Spotify, meal kit plans: all these things that you can sign up for and then pay for as long as you want. I, officially, it’s very exciting, joined the cohort of millennial cord cutters last month. I thought I was super-unique, but then realized over 20 million Americans have already done the same. Have you cord cut yet?

    Oscar Pulido: Not quite and I’m once again proving I’m not in the millennial cohort, but--

    Nora Vonier: Well, I found there’s also cord-nevers, maybe this is your kids, but people who have grown up never, ever having cable. So that’s more Gen Z.

    Oscar Pulido: This is also, I hear that some millennials don’t even want a driver’s license, so I think there are all sorts of terms that we’re going to have to start inventing for this cohort.

    Nora Vonier: Yeah. First it was not learning stick shift, now not getting a driver’s license at all. Another area is the emergence of the sharing or gig economy activities that millennials are all on board with, with ride sharing, AirBnBs, Task Rabbits, millennials want to share and rent legitimately everything it seems. It’s not just cars and houses, but you can rent power tools, clothing, jewelry and furniture. And then last but not least is education. Millennials carry over a trillion dollars in student loan debt, so paying off those expenses is really a priority for this age group.

    Oscar Pulido: So let’s talk about technology which seems to be a common factor that I’m picking up across all these different topics that we’re talking about. And we see it with people’s addictions to cellphones, although there I do start to feel like a millennial as well. Maybe it’s all cohorts have that issue. So how is technology changing millennials’ daily lives and their outlook on the future?

    Nora Vonier: There is no escaping that technology and automation have baked themselves into every part of our routine in some way or another. So just take this morning, I asked my dear friend “hey Google” what the weather was going to be. I ordered and paid for my coffee from my phone, I checked my email and work texts on my walk to work, and if I had woken up on time, I would have gone on a run and used my Apple Watch. And fun fact, Apple recently reported in their earnings that their wearables division, so the watches and air pods, reportedly had the same sales as Starbucks globally. Although I don’t know the exact portion of buyers of the Apple Watch that are millennials, if I had to guess, I’d say it’s a pretty large portion. To bring it a little higher level, though, millennials have different attitudes on the value that technology brings to the workforce. Over 70 percent of the population is actually really optimistic about technology such as AI, robotics, that they’re creating jobs. Versus when you talk to older generations, there is actually more of a sentiment of fear about technology taking jobs away from the market. Leisure and consumer spending I think is another area where tech is just continually enabling us to get things faster and in a more convenient way, and that is now our expectation of how we interact with brands and buy goods. And another area to mention is fintech. I think it’s democratizing how we save, how we invest, but despite new companies and apps rolling out into market at what feels like a daily rate, the one thing I do find really interesting is that half of the millennial population is still worried about their financial situation to even think about the future, which is a higher percentage than baby boomers or Gen X.

    Oscar Pulido: And why is that to jump in—we have more access to information now than we ever have but yet, the millennials feel uncertain about their financial future, maybe they’re not making that investment decision. It seems like a paradox, it should be the other way around, if they have all this information accessible, right?

    Nora Vonier: It seems very much like a disconnect, right. I think we’re at this place of information overload and that coupled with not knowing which sources to trust and not, it’s going to take some time and effort for us to really solve the problem of why. I’m optimistic that in this generation we can figure that out. It’s just going to make sure we are taking the innovation that we have and using it for good to create and change the habits.

    Oscar Pulido: And so since we’re talking about investments, as you think about these megatrends, you’ve talked about how they’re shaping the economy and how it affects people’s day to day lives, but if you’re an investor, what are the most exciting ways to tap into these trends?

    Nora Vonier: So a lot to choose from, but if I had to pick, I personally think the areas related to medical breakthroughs are the most exciting. I’m not making any promises, but it’s not crazy to see millennials and Gen Z’ers living and thriving well into their 100s. To that end, I think immunology and genomics are two fascinating areas within this space that are helping detect, prevent and treat diseases that we’re currently seeing loved ones go through. We’re going to see that in our lifetime, the product of that research and development. Another area is clean energy and the need for solutions that improve energy efficiency and alternatives, whether it’s solar, wind, hydro. All of these things are becoming more common and the cost to produce them is declining. So it’s making these alternative sources of energy more accessible, and we see that from over 80 percent the price of solar has dropped for people to access that type of renewable energy.

    Oscar Pulido: I want to ask you one final question which is, will the millennials in ten or twenty years be talking about different megatrends than what we’re talking about right now?

    Nora Vonier: That’s a great question to think about. The basis behind the megatrends that we’ve talked through is these will persist into the long term, right, five, ten, twenty years down the line. So we expect the megatrends that we’ve talked about to stay steady, but what I do think will change and evolve is the underlying themes within each of those trends. So they’re going to have to evolve as consumer needs change and societies’ needs change. I think the central theme is that change is happening at a faster rate now given the impact of technology. If you take a look back, it took 35 years for telephones to reach a quarter of American households, 25 for TVs. When you fast-forward to the early-2000s, it only took four years for Facebook to reach that same amount of the population. So that’s what I am most excited about in this area of the market, there is a lot of history to be written and figuring out how to harness and invest in these opportunities is a really inspiring challenge that I think we all have before us.

    Oscar Pulido: Nora, you’ve given me a ton of fun facts to use at the next cocktail party I go to, but let’s go to the rapid fire round. What I want to do now is ask you whether you think the following things will happen in five, ten, thirty years or never, are you ready?

    Nora Vonier: Hope so.

    Oscar Pulido: Life expectancies in the developed world surpass 100?

    Nora Vonier: 30. Since it’s currently in the 70s, I think that’s attainable in 30 years.

    Oscar Pulido: Which means you’re going to have to save for retirement if in fact you’re going to live that long. E-sports entirely replace real sports?

    Nora Vonier: Going to have to go with never. Surpass, maybe. But after watching my home team win the NCAA basketball championship this year, I have a really hard time believing that e-sports will in fact replace the real experience entirely.

    Oscar Pulido: I tend you agree with you on that one. I’m very jealous that your team won the championship. Remote working surpasses office jobs?

    Nora Vonier: I’d go with ten years. I think that the tech capability already exists, it’s more the adoption of companies to really determine when that switch will happen.

    Oscar Pulido: People regularly travel to outer space?

    Nora Vonier: I’m going to split the difference between ten and thirty and go with twenty here. The first space tourism company began trading on the stock exchange, so I think we’re trending in that direction.

    Oscar Pulido: It just feels funny to even say that, to think I’m going to outer space for a trip. Our last one, we shift our focus from self-driving cars to self-driving planes.

    Nora Vonier: Thirty. Although based on the space travel question, why stop at planes? I look forward to seeing the first self-steering rocket ship in my lifetime I think.

    Oscar Pulido: You’re thinking ambitiously. Nora, thank you so much for joining us today on The Bid, it was a pleasure having you.

    Nora Vonier: Thanks so much for having me.