Bank of America Data Shows Weak Gen X Discretionary Spending Amid Rising Necessity Expenses
In a recent report by BofA Securities, it was revealed that Gen X discretionary spending has been on the decline compared to other generations. This is a significant trend as Gen X, despite making up only 27% of households, accounts for over 33% of consumer expenditures, surpassing even Millennials.
As of August 2024, Gen X's discretionary spending dropped by 2% year-over-year, signaling a notable shift in behavior. One of the main reasons for this decline is the increasing share of household spending on necessities such as housing, utilities, and insurance, which are typically paid through non-card channels like ACH and bill pay. This leaves less room for discretionary purchases.
Another contributing factor is Gen X's focus on saving and investing as they age. BofA's data indicates that investments per Gen X household are 40% higher than the average across all generations, showing a prioritization of long-term financial security over short-term consumption. This trend is especially prominent among those nearing retirement, with many increasing contributions to retirement accounts.
Furthermore, Gen X faces financial pressures from both ends of the generational spectrum, often supporting aging parents and adult children. With a growing number of young adults living at home and relying on parental financial support, Gen X households are further constrained in their ability to spend on non-essential items. Despite slower wage growth compared to Millennials and Gen Z, Gen X's expense-to-wage ratio has remained stable, suggesting that reduced spending may be a deliberate choice rather than a necessity.
Looking ahead, while Gen X may eventually benefit from the "great wealth transfer" from Baby Boomers, who will pass down trillions of dollars in assets, this windfall is still years away. In the meantime, the ongoing financial pressures of supporting multiple generations, coupled with a focus on retirement savings, indicate that Gen X's reduced spending is likely to persist in the near future.
Analysis:
- Gen X discretionary spending is declining due to increasing necessity expenses.
- Gen X prioritizes saving and investing for long-term financial security.
- Financial pressures from supporting both older and younger generations impact Gen X's spending.
- Despite slower wage growth, Gen X's spending reduction may be a choice rather than a necessity.
- Future financial windfalls from Baby Boomers may benefit Gen X, but for now, reduced spending is expected to continue.
