Generational spending gap: Baby boomers splurge, Millennials don’t

Older Americans splurge on travel and dining out more than younger consumers, who spend more on housing and basics, in an unusual and widening generational gap in spending patterns, according to a new report.

Internal data from Bank of America account holders reflects a growing divide in spending habits between working-age adults and retirees. Baby boomers (roughly ages 59 to 77) and traditionalists (ages 78 to 95) in all income groups are outperforming their younger counterparts, the bank found. Many of these gains were concentrated in leisure expenses, such as travel and hotels.

“There’s a big wedge that’s opened up between the spending of the older generation and the younger generation,” 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 upturns in travel or broader leisure services may be a kind of relaxation – they’re splurging or capitalizing on something they couldn’t do during the pandemic,” he said, adding that there had been a notable increase in cruises among travelers in their 60s , the 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 these categories rose as they became more comfortable venturing out.

Overall, 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 pull overall spending down 0.2 percent.

People spend less on hotels, flights and restaurants

Some of this spending growth among older Americans is being driven by larger Social Security payments, which rose 8.7 percent to offset inflation this year.

But just as important, say the study’s authors, is that older Americans also tend to have lower housing costs. Many own their home outright or have locked in a low mortgage interest rate. Younger adults, by comparison, are more likely to rent. They’re also more likely to move, either for work or family reasons, which means they constantly have 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 disproportionately affect younger generations.”

In California, Emerald Culmer, 29, spends more than a third of her take-home pay on a one-bedroom apartment she shares with her cat, Franklin.

Culmer earns $75,000 a year working for a technology company. But she also has about $92,000 in student loan debt. She left her master’s course during the pandemic and is unsure whether she will return, partly because she is worried about taking on more loans. In addition, she is paying off around $10,000 in credit card debt, related to moving costs.

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“I’m a Millennial drowning in debt,” she said. “I’m lucky to have a tech job from home, which helps enormously in terms of commuting and gas. But everything has gone up so much, be it rent or groceries or basic necessities. I’ve had to cut a lot of corners.”

She has canceled all monthly subscriptions and relies on her grandmother for Hulu and Disney Plus. Culmer says she has also benefited from the pandemic-related freeze on student loan payments, although they are set to begin again at the end of August.

Resuming student loan payments could widen the spending gap even more, dealing another blow to adults between 25 and 49, who hold about 70 percent of the nation’s student loans, according to Education Department data cited by Bank of America.

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“Financially, I’m worse off now than I was a few years ago,” Culmer said. “And when those student loans start again, I’ll sacrifice a little more.”

A slowdown in the economy, which many analysts predict for this year, could further exacerbate the generation gap. If the labor market weakens, companies may start laying off more people.

Bank of America researchers noted that it is “striking” that even Gen X (ages 46 to 58), who typically reflect the spending patterns of baby boomers and other older adults, are showing the same signs of decline as Millennials and Gen Z (younger than 28) , although they did not give any reasons for the shift.

“It’s important that Gen X – who are not particularly young – behave more like the younger generation in their spending patterns,” said Tinsley, who identifies with Gen X. “There seems to be a split in behavior between workers and non-workers.”

Steve Barrera, 56, a software engineer in Morgantown, Pa., says paying for his son’s college education, combined with higher costs for food and other expenses, has made it harder to squirrel away extra cash. His family of four has cut back on travel, including local trips and week-long stays at the beach.

Meanwhile, his father and stepmother — both retired baby boomers — take two cruises a year and recently vacationed in Iceland.

“We make good money. We’re doing well financially, but I probably won’t have the same financial situation that they have, he said. “It’s getting harder to save. I don’t have a pension and my retirement is very dependent on the financial markets, so there’s always a bit of anxiety there.”

Rising prices for food, housing and other everyday costs have also made it more difficult for many families to maintain their spending habits. Although inflation has slowed from a peak of 9.1 percent last summer, prices are still 4 percent higher than a year ago.

Inflation eased further in May, but remains above normal levels

Still, many Americans are saving more than they did a few years ago. Stimulus funds from the pandemic, combined with pullbacks in spending on travel and other services, have left median household savings and checking balances well above pre-pandemic levels for all generations, according to Bank of America.

But that does not mean that long-standing wealth differences are not increasing. Baby boomers held roughly $73 trillion in wealth at the end of last year, eight times as much as Millennials did, according to Federal Reserve data. That equates to an average net worth of $1.7 billion for baby boomer households, compared to $214,000 for Millennials.

Kate Brown, a retired nurse in the Midwest, and her husband are getting ready for a two-week blowout vacation. They take a cruise to Alaska, then head out on a train ride and wildlife photography.

It’s their first big hurrah after retiring and getting through the pandemic. They’ve largely held steady in recent years, and a recent inflation-related bump in Social Security payments made it a little easier to cover the basics.

But it’s a different story for their two children, in their 20s, who are just entering the workforce after college and law school. One lives at home, while the other spends a large part of his income on rent.

“I see a big departure from when we were young,” said Brown, 63. “Education costs are through the roof. The housing market is horrible. And there are all these other exorbitant expenses that we never had: cable, cell phone bills, Internet. These kids are behind the eight-ball before they even get out the door.”

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