According to a recent report, there’s a notable and expanding generational divergence in spending habits. Older Americans are increasingly indulging in travel and dining out, while younger consumers are directing more of their funds towards housing and essential items.
Based on internal data gathered from Bank of America account holders, a significant disparity in spending behaviors has emerged between working-age adults and retirees. The study revealed that both baby boomers (roughly ages 59 to 77) and traditionalists (ages 78 to 95) in all income brackets are outpacing their younger counterparts in expenditure. Notably, a considerable portion of these increased expenses is focused on leisure activities, particularly travel and hotel stays.
David Tinsley, senior economist at the Bank of America Institute, pointed out the significant gap that emerged in spending patterns between the older and younger generations.
He suggested that one possible reason for this division could be a change in spending behavior following the pandemic. Older Americans, being more vulnerable to the risks associated with travel during the pandemic, might have been cautious and hesitant to venture out until now.
Some of the resurgence in travel could be attributed to the release of pent-up demand. He further explained that people might be indulging in these activities as a way to make up for the experiences they missed during the pandemic. Notably, there has been a significant increase in cruise bookings among travelers in their 60s, 70s, and 80s.
Bank of America credit card data reveals that spending on airlines and hotels among younger adults experienced a 5% decline in April compared to the previous year. However, the data also shows a contrasting trend among older adults, as their spending in these categories actually increased. This boost in spending suggests that older adults have grown more at ease with the idea of venturing out and engaging in travel-related activities.
The increased spending among older Americans is partly fueled by larger Social Security payments. These payments saw a significant rise of 8.7% this year to compensate for inflation, contributing to the growth in their overall spending.
Steve Barrera, a 56-year-old software engineer residing in Morgantown, Pennsylvania, expressed the challenges he faces in saving extra money. With the burden of paying for his son’s college education and the escalating costs of essential items, there is little room for substantial savings. As a result, his family of four has had to curtail their travel plans, including local trips and beach vacations.
In contrast, Steve’s retired father and stepmother, both baby boomers enjoying pensions, lead a different lifestyle. Unburdened by college expenses and facing fewer financial constraints, they can afford a more lavish approach to leisure. They take advantage of their retirement by embarking on two cruises annually and recently experienced a vacation in Iceland.
The escalating prices of essential items such as food, housing, and other daily expenses have posed challenges for numerous families in maintaining their usual spending patterns. While inflation has moderated since its peak of 9.1 percent the previous summer, prices still remain 4 percent higher than they were a year ago. These persistent cost increases have put strains on household budgets and made it difficult for families to maintain their pre-inflation spending levels.
Despite the challenges presented by rising costs, a significant number of Americans have managed to increase their savings compared to a few years ago. Thanks to pandemic-era stimulus funds and reduced spending on travel and other services, median household savings and checking account balances have surpassed pre-pandemic levels for all generations, as reported by Bank of America. The combination of financial assistance and decreased expenditure has helped individuals and families bolster their financial reserves, providing a buffer during these uncertain times.
Even though, as a whole, we’ve saved more, the longstanding wealth disparities are still growing. Federal Reserve data reveals that as of the end of last year, baby boomers possessed approximately $73 trillion in wealth, which is eight times more than what Millennials held. This stark contrast translates to an average net worth of $1.7 million for baby boomer households, while millennials’ average net worth is considerably lower at $214,000.
These numbers highlight the significant gap in wealth between the two generations, emphasizing the ongoing challenges faced by younger individuals in building substantial financial assets.