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Discretionary Spending by Millennials: Balancing Choice and Financial Well-Being

Discretionary spending habits of millennials

Discretionary spending, the money you choose to allocate beyond your fixed expenses like rent, groceries, and utility bills, provides a realm of financial freedom and personal choice. How you manage your discretionary spending can significantly impact your financial well-being. One outspoken advocate of financial prudence, Kevin O’Leary from the TV show “Shark Tank,” asserts that millennials often squander their discretionary funds on seemingly frivolous items such as coffee-shop coffee, shoes, and jeans. While O’Leary’s views are worth considering, it’s also crucial to explore another perspective, one that advocates prioritizing discretionary spending based on personal utility and happiness.

1. Overpriced Coffee

Kevin O’Leary vehemently opposes the idea of spending $4 or more on coffee regularly when, according to him, you could brew it at home for less than $1 per cup. He insists that such expenditures should be avoided until you’ve paid off your college debt and started saving. If you have significant debt and aren’t saving yet, spending around $20 per week on coffee might indeed be considered wasteful. Over a year, this adds up to $1,040, which could have been used more wisely elsewhere. However, this viewpoint oversimplifies the value of discretionary spending. For some, a daily visit to a coffee shop isn’t just about caffeine; it’s a social ritual or a source of comfort and enjoyment. The decision to allocate funds to such experiences should be based on individual priorities and financial circumstances.

2. Shoes

O’Leary also criticizes millennials for splurging on shoes beyond what he deems necessary—four pairs: flip-flops, workout shoes, and two pairs of dress shoes. He argues that accumulating more shoes is unnecessary because they’ll likely go unworn and sit idle for years. The number and type of shoes a person requires are closely tied to their lifestyle, preferences, and the climate in which they live. Blanket advice limiting shoe purchases to four pairs fails to acknowledge the diversity of individual circumstances. It’s essential to consider the practicality and personal significance of such purchases.

3. Jeans

Lastly, O’Leary’s stance on jeans is that having more than three pairs, including black, white, and original jeans, is excessive. Again, this perspective overlooks variations in lifestyle and personal preference. For those who wear jeans daily for work or leisure, a larger collection may be practical and necessary.

An Economist’s Perspective

While O’Leary’s advice carries weight in terms of fiscal prudence, it rests on the assumption that all individuals place the same value on different expenditures. Robert R. Johnson, a professor of finance at Creighton University, offers an alternative viewpoint. He argues that financial decisions should be driven by the utility they provide. Johnson contends that people should prioritize spending on activities that bring them the most happiness or utility while minimizing expenses on items that provide limited utility. 

For instance, if someone derives great pleasure from their daily coffee shop visit due to the social aspect, it may be well worth the expense. He also advises against comparing one’s spending choices to those of others, especially when interests and priorities differ. Instead, individuals should assess what truly brings them joy and allocate resources accordingly.

The Solution

In terms of discretionary spending, the key lies in aligning expenditures with personal values and happiness. Contrary to rigid financial rules, such as those proposed by O’Leary or Suze Orman, Johnson advocates embracing one’s uniqueness and prioritizing spending accordingly. What may seem wasteful to others might be a source of immense joy to you. The real challenge arises when people spread their finances too thin, spending money on everything without prioritizing. Johnson emphasizes the importance of directing resources toward what truly matters to you while budgeting for debt repayment and savings. This approach allows you to enjoy life while maintaining financial stability.

Simply put, discretionary spending is a balancing act. While financial experts like Kevin O’Leary offer valuable advice on curbing unnecessary expenses, it’s equally crucial to consider your individual circumstances and priorities. The key to achieving financial well-being is not just about cutting expenses but about spending consciously on what brings you the most happiness and utility. By aligning your spending choices with your unique values, you can strike a harmonious balance between fiscal responsibility and personal satisfaction.

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