Older Americans are increasing their spending faster than younger generations, according to data from Bank of America, which suggests this can be partly attributed to the relatively generous 8.7% cost-of-living-adjustment (COLA) for Social Security beneficiaries this year.
As the bank noted, the COLA was the largest increase in 40 years for Social Security recipients.
The generational differences were reflected in data that showed overall consumer spending has been relatively stable. According to the bank, baby boomers’ spending increased 2.2% in May, while it dropped 1.5% among millennials and Gen Z.
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This comes at the same time as many boomers report delaying retirement because of fears about the economy.
As BoA describes it, baby boomers (born 1946-64) and Traditionalist households (1928-45) are showing higher year-over-year growth rates in total credit card spending. Gen X, which is made up of people born between 1965 and 1977, is showing the same weaker trends as millennials and Gen Z.
The differences can pose a challenge for those seeking to talk about money across generations.
BoA found evidence of faster spending growth in households that receive Social Security payments, compared to those that don’t. Another factor, according to the bank, is younger generations are likely to face higher housing costs and the consequences of the end of the student loan repayment moratorium.
Titled “The Young and the Restless,” the report from the bank notes that housing costs are felt differently across generations, which likely contributes to the difference in spending.
The report notes that data shows that Gen Z and millennials are seeing a much higher rise in median rent and mortgage payments than older generations. This comes at a time when boomers have become the largest generation of homebuyers.
Still, younger adults are more likely to move for work or to accommodate growing families. This means, the bank says, that younger generations face more rising rent and house prices as they move around, while older generations may move less.
Another explanation the bank offered is the fact that older Americans reduced spending more during the pandemic, so some of the acceleration in spending may be a recovery from that.
Younger adults overspend because of friends
In the meantime, spending habits are becoming a source of friction among younger adults, according to a survey conducted by Qualitrics on behalf of Intuit Credit Karma.
That study showed 36% of Gen Z and millennials reporting having a friend who drives them to overspend. This is resulting in debt and sometimes ending friendships to protect finances.
The study showed 88% of millennials and 80% of Gen Z who have these overspending friends have taken on debt as a consequence of spending time with that friend. “Millennials are worse off however, with 15% admitting they’ve taken on $500 or more in debt as a result of spending time with their spendy friend, compared to just 2% of Gen Z respondents in the same boat,“ the report says.
The overspending is concentrated on dining or drinks and nights out, trips and vacations and birthday celebrations.
Credit Karma notes that the top reasons young survey respondents spend money they don’t have when they’re with these friends include not wanting to feel left out (31% of Gen Z and 32% of millennials who say they have a friend who drives them to overspend), wanting to keep up with their friend’s lifestyle (29% of Gen Z and 28% of millennials) and wanting to please their friend (29% of Gen Z and 28% of millennials). Another 28% of millennials admit they just don’t know how to say “no” to this friend.
Note: A version of this item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement.Subscribe for retirement advicethat’s right on the money.
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The article discusses a notable trend observed by the Bank of America, indicating that older Americans are increasing their spending at a faster rate than younger generations. The primary factor attributed to this phenomenon is the substantial 8.7% Cost of Living Adjustment (COLA) for Social Security beneficiaries, marking the largest increase in 40 years. This adjustment has significantly impacted the spending behavior of baby boomers and Traditionalist households.
The generational differences in spending patterns are highlighted in the data provided by the bank. While baby boomers' spending increased by 2.2% in May, it dropped by 1.5% among millennials and Generation Z. This divergence is crucial for understanding the dynamics of consumer spending and its implications on the economy.
Furthermore, the report emphasizes that baby boomers and Traditionalist households are exhibiting higher year-over-year growth rates in total credit card spending compared to Generation X, millennials, and Gen Z. This financial divergence poses challenges for those attempting to navigate financial conversations across different age groups.
The Bank of America identifies several contributing factors to these spending disparities. One significant factor is the higher housing costs faced by younger generations, coupled with the end of the student loan repayment moratorium. The report, titled "The Young and the Restless," underscores that housing costs affect generations differently, contributing to variations in spending behavior.
The study also notes that younger generations, including Gen Z and millennials, experience a more substantial increase in median rent and mortgage payments compared to older generations. This occurs amid baby boomers becoming the largest generation of homebuyers, highlighting the contrasting housing dynamics across age groups.
Additionally, the bank suggests that the spending acceleration among older Americans may be a recovery from reduced spending during the pandemic. This insight adds a nuanced perspective to the analysis, considering the broader economic context.
The article concludes by discussing spending habits among younger adults, revealing that overspending is becoming a source of friction. A survey conducted by Qualtrics for Intuit Credit Karma indicates that a significant percentage of Gen Z and millennials report having friends who drive them to overspend, leading to debt and strained relationships.
In summary, this analysis underscores the complex interplay of economic factors, demographic trends, and generational dynamics influencing consumer spending patterns. The insights provided by the Bank of America offer a valuable perspective on the challenges and opportunities within the current economic landscape, particularly in the context of different age groups and their financial behaviors.
