Baby Boomers are spending lavishly on cruises and dining establishments. Younger Americans are having difficulty keeping up.
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According to internal data from Bank of America, there is currently a “significant gap” in spending between the older and younger generations.
Gen X, Gen Z, and Millennials are making spending cuts as they struggle with high housing costs and impending school debt obligations, but Baby Boomers and even Traditionalists (born 1928–1945) are increasing their spending.
In a phone interview with CNN, senior economist at the Bank of America Institute David Tinsley said, “It’s fairly unusual.”
According to the bank’s card statistics, household spending decreased by 0.2% year over year in May, but the generational breakdown painted a more nuanced picture.
Spending increased by 2.2% for Baby Boomers and 5.3% for Traditionalists. Younger generations’ spending, on the other hand, decreased by roughly 1.5%.
According to Tinsley, total consumer spending would have been significantly worse if it weren’t for Boomers’ impulsive purchasing.
Increased Social Security benefits
So what is happening?
American seniors are increasing their expenditures as a result of an increase in their Social Security benefits.
The largest increase since 1981, an 8.7% cost-of-living adjustment was given to Social Security claimants beginning in January. The average retiree’s monthly benefits are rising by an estimated $146 as a result of this rise, which is directly a result of high inflation.
According to Bank of America spending data, those that received the cost-of-living increase saw a considerable increase in their spending.
Bank of America cited high housing costs as the reason for the decline in young Americans’ spending. Recent years have seen a rise in mortgage rates, property prices, and rental rates.
Additionally, younger Americans migrate far more frequently than older ones do.
“The people who do move are really facing quite significant cost increases,” Tinsley added.
Now that the Covid emergency is resolved, Bank of America has seen that older clients are spending on travel, including hotels, airlines, and cruises.
Older generations avoided travel during the pandemic because of Covid worries, but Tinsley said that today they are “splurging.”
The dreaded return of payments for student loans
Bank of America stated that in addition to the high cost of living, many younger Americans are probably preparing for the resurgence of a substantial monthly expense: college debt.
A clause specifically prohibiting the Biden administration from extending the suspension of federal student loan payments was included in the bipartisan debt ceiling agreement.
By the end of August, the student debt moratorium that has been in place since March 2020, when the Covid epidemic broke out, is likely to be lifted.
Younger consumers find that to be very distressing. According to the New York Federal Reserve, Americans have $1.6 trillion in student debt, with people under the age of 49 holding the majority of it.
For millions of Gen Z and Millennials, the resumption of student loan payments will equate to less money available for dining out and travel.
According to Tinsley, some consumers may be beginning to cut down on their spending in anticipation of that change because “it’s coming down the tracks pretty fast now.”