The most anticipated recession of all time still hasn’t shown up. And it’s all thanks to Baby boomers and Traditionalists! While younger generations are cutting back on their spending, older generations are letting the good times roll. Their spending is important too; those age 59 and older account for the majority of the nation’s spending and wealth. Let’s take a look at some of these details more closely from Bank of America’s latest Consumer Checkpoint.
The spending gap
As the year has progressed, consumer spending as a whole as remained resilient. However, that’s largely thanks to the older population. Year-over-year spending for those age 58 and younger, (Gen X or younger), has turned negative. Baby Boomer’s and Traditionalist’s year-over-year spending levels are still positive.
Especially interesting is that if you sort the spending comparisons by income levels, we’re seeing “upper class” older people spending more than “upper class” younger people. The same is true for the middle and lower class.
What could be driving this?
One of the reasons spending has stayed steady among older generations compared to younger generations is due to social security. This year, with inflation at a 40-year high, social security recipients received their highest cost of living adjustment (COLA) in 40 years. In effect, this was a pay raise for retirees, many of whom have been unaffected by one of the largest inflationary forces of the last two years: housing costs. Gen Z and Millennials are seeing a much higher rise in median rent and mortgage payments than older generations.
Another factor that is likely impacting spending behavior across generations is student loans. As we get closer to the end of the student loan moratorium, it’s reasonable to expect a slow down in spending by those most affected. And who is most affected? Younger people: those between age 25-49 make up the greatest share of student loan borrowers and total outstanding balances.
A final consideration in favor of older generations is their general accumulation of wealth over the years. They’ve benefitted from staying the course in the stock market, with markets rebounding strongly from the 2008 Financial Crisis. Furthermore, older generations are the last beneficiaries of defined benefit pension plans, which are mainly a thing of the past. In general, older generations hold a lot more wealth than younger generations, allowing them to better deal with a rising cost of living.
The recession starts when the boomer’s say so
For those wondering when the long promised recession will begin, maybe ask your elder parents. Baby Boomers seem to be the engine that is powering the economic train right now. Unless, and until, their spending power wanes, the economy probably stays on a steady track. So thank you, Boomers… the economy owes you one!
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