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Millennial lifestyle splurge can fuel Indonesia’s economy, says study

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Indonesian Muslim women sit outside a Starbucks cafe at a shopping mall in Jakarta. Coffee shops have significantly grown in numbers across the country. ADEK BERRY/AFP

Millennial lifestyle splurge can fuel Indonesia’s economy, says study

The millennial generation is characterised by many things, including the tendency to splurge on lifestyle purchases, from skincare and eating out to wellness classes and travelling.

The good news is that their consumptive behaviour may give Indonesia’s sluggish economy the boost it needs, with a study finding that young Indonesian adults are experiencing a significant rise in spending power.

A good example of this demography is Callista Amadira, a 23-year-old private company employee in Jakarta who still lives with her parents and spends more than half of her monthly income on daily activities, skincare treatments and entertainment.

“I save about 20 per cent of my income for future needs, but the rest I use to pay for my activities, such as eating out and transportation, buying skincare products and paying for a wellness class and Netflix,” she said.

Adhinugraha Putra, a 24-year-old IT analyst in Jakarta, also spends half of his income on social activities and entertainment, for eating out with friends and to purchase gaming apps.

“I often go out with my friends, I admit that I am a bit extravagant but once I get a pay raise, then my income will be enough for me to save more money.”

A recent study by private lender United Overseas Bank (UOB) Indonesia found that millennials aged 21 to 39 years spend 50 per cent of their income on consumption, which includes travel, digital entertainment, food and beverages and skincare.

It also found that the income of millennials saw a compound annual growth rate of 8.6 per cent from 2010 to this year, the highest of all age groups.

Bank Indonesia’s (BI’s) newly appointed senior deputy governor, Destry Damayanti, said young people were one of the country’s major growth engines, adding that the central bank was supporting the digital economy to boost consumption.

“E-commerce transactions are growing at an unprecedented rate [and] we should encourage the development of the digital economy. BI is currently trying to integrate the conventional economy with the digital economy,” she said during a discussion in Jakarta last Wednesday.

BI recently released Quick Response Indonesia Standards, an integrated e-payment service, to encourage more cashless transactions and support the growing digital economy.

According to Statistics Indonesia (Badan Pusat Statistik, BPS), household spending is Indonesia’s main growth engine, contributing 56 per cent to the country’s gross domestic product last year.

Destry said that BI expected the economy to experience 5.0 to 5.4 per cent growth this year and had set a higher target of 5.1 to 5.5 per cent growth despite the escalation of the Sino-US trade war that is expected to further hamper global economic growth.

“We are looking to optimise our domestic economy to face this situation because the trade war will continue for the long term,” she said.

Speaking during the same discussion, Communications and Information Minister Rudiantara said the government would rely on consumption to boost growth as investment and export growth would remain weak.

“The digital economy will boost domestic consumption because now there is a more efficient way [to do business],” he told reporters.

Rudiantara said the ministry was still developing information, communication and technology (ICT) infrastructure such as the Palapa Ring nationwide broadband network. “We have yet to finish [the Palapa Ring project].”

The government, Rudiantara said, was implementing affirmative policies for micro, small and medium enterprises (MSMEs) in online marketplaces.

“In developing the digital economy, regulation must have a light-touch to allow [online MSMEs] to grow . . . The success rate [of online MSMEs] is only five per cent. If regulations are tightened, this could drop. We are shifting from regulator to facilitator,” said the minister.

Meanwhile, UOB Indonesia president-director Kevin Lam said the consumption pattern of millennials was unique, as the study showed that young people spend 50 per cent of their income on lifestyle consumption.

“This pattern is different from members of the previous generation, who use 70 per cent of their income to pay for primary needs and other basic consumption,” said Kevin, adding that millennials’ consumer behaviour had risen in the past several years.

Kevin said the rise of digital platforms had contributed significantly to the growth of MSMEs, adding that Indonesia’s millennials utilised digital platforms to innovate and create new markets.

“We believe the growth of consumption [behaviour] will spur the growth of the digital economy, as it will strengthen the national economy,” Kevin added.

Institute for Development of Economics and Finance economist Andry Satrio Nugroho told the Jakarta Post that the lifestyle consumption of millennials could boost industries in both the upstream and downstream sectors, highlighting the coffee industry as one example of an industry that had benefited from the consumer behaviour of millennials.

“The consumption culture of young people has made them more likely to consume imported products via [online] marketplaces . . . This is bad news for the country because if export performance weakens at the same time it could widen the current account deficit,” said Andry.

According to 2018 data from the National Labor Force Survey, 30.56 per cent of urban millennials work in the service sectors, which is more than baby boomers and Generation X.

Andry said the figure showed there had been a shift in job preferences between generations.

“They [millennials] work in growing service sectors that provide them with disposable income. Through this, millennials are earning enough to support their consumption,” Andry said, adding that this was only the case in urban areas. The Jakarta Post

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