San Diego Union-Tribune (Sunday)
THERE’S A WIDENING SPENDING GAP BETWEEN RETIREES, YOUNGER ADULTS
Older Americans are splurging on travel and dining out more than younger consumers, who are spending more on housing and basics, in an unusual and growing generational gap in spending patterns, according to a new report.
Internal data from Bank of America account holders reflects a widening split in spending habits between working-age adults and retirees. Baby boomers (roughly ages 59 to 77) and traditionalists (ages 78 to 95) in every income group are outspending their younger counterparts, the bank found. Many of those gains were concentrated in leisure spending, such as travel and hotels.
“There’s a large wedge that’s opened up between the older generation and the younger generation’s spending,” said David Tinsley, senior economist at the Bank of America Institute.
One reason for the divide, he said, could be a shift in spending behavior after the pandemic, which proved riskier and more dangerous for older Americans who may have been reluctant to travel until now.
“Some of these rebounds in travel or broader leisure services may be a kind of unwinding — they’re splurging or making good on something they couldn’t do during the pandemic,” he said, adding that there had been a noteworthy spike in cruises among travelers in their 60s, 70s and 80s.
Among younger adults, spending on airlines and hotels fell 5 percent in April from a year ago, according to Bank of America credit card data. But for older adults, spending in those categories ticked up, as they became more comfortable venturing out.
In all, baby boomers spent 2 percent more in May than they did a year ago, while Traditionalists spent 5 percent more - although a pullback among younger generations helped drag down overall spending by 0.2 percent.
Some of that spending growth among older Americans is being fueled by larger Social Security payments, which rose by 8.7 percent to offset inflation this year.
But just as important, the study’s authors say, is that older Americans also tend to have lower housing costs. Many own their homes outright or have locked-in low mortgage rates. Younger adults, by comparison, are more likely to rent. They are also more likely to move, either for work or family reasons, which means they’re constantly having to renegotiate housing costs, Tinsley said.
“Younger generations move house twice as much as older generations - and every time they move, they face higher rents, or higher mortgage rates and potentially higher house prices,” he said. “The net result is that higher housing costs are impacting younger generations disproportionately.”
In California, Emerald Culmer, 29, spends more than one-third of her take-home pay on a one-bedroom apartment she shares with her cat, Franklin.
Culmer makes $75,000 a year working for a tech company. But she also has about $92,000 in student loan debt. She left her master’s program during the pandemic and is unsure whether she’ll return, in part because she’s worried about taking on additional loans. Plus, she’s paying down about $10,000 in credit card debt, related to moving costs.
“I’m a Millennial who is drowning in debt,” she said. “I’m lucky that I have a work-from-home tech job, which helps tremendously in terms of commuting and gas. But everything has gone up so much, whether it’s rent or groceries or basic necessities. I’ve had to cut a lot of corners.”
She’s canceled all monthly subscriptions and relies on her grandmother for Hulu and Disney Plus. Culmer says she has also benefited from the pandemicrelated freeze on student loan payments, though those are set to begin again at the end of August.
Resuming student loan payments could widen spending gaps even more, dealing yet another blow to adults between 25 and 49, who hold about 70 percent of the country’s student loans, according to Education Department data cited by Bank of America.
“Financially speaking, I’m worse off now than I was a few years ago,” Culmer said. “And when those student loans kick in again, I’ll be sacrificing some more.”
A downturn in the economy, which many analysts are forecasting for this year, could further worsen the generational divide. If the job market weakens, companies could begin laying off more people.
Bank of America researchers noted that it is “striking” that even Gen X (ages 46 to 58), which typically mirrors spending patterns for baby boomers and other older adults, is showing the same signs of weakening as Millennials and Gen Z (younger than 28), though they did not offer any reasons for the shift.
“It’s significant that Gen X — who aren’t particularly young — are behaving more like the younger generation in their spending patterns,” said Tinsley, who identifies at Gen X. “There seems to be a split in behavior between workers and non-workers.”
Many Americans have more saved up than they did a few years ago. Pandemic-era stimulus funds, combined with pullbacks in travel and other services spending, have left median household savings and checking balances well above pre-pandemic levels for all generations, according to Bank of America.
But that doesn’t mean longstanding wealth discrepancies aren’t intensifying. Baby boomers had roughly $73 trillion in wealth at the end of last year, eight times as much as Millennials did, according to Federal Reserve data. That translates to an average net worth of $1.7 million for baby boomer households, compared with $214,000 for Millennials.