Why the slowdown in Gen X spending? Via Investing.com

Investing.com — “Bank of America’s internal card data shows that discretionary spending among Gen Xers has been particularly weak compared to other generations,” analysts at BofA Securities said.

Gen X is a critical segment of the US economy that is often overlooked. Despite only making up 27% of households in 2022, they accounted for more than 33% of consumer spending, surpassing even Millennials.

As of August 2024, Gen X’s discretionary spending is down 2% year-over-year, indicating a significant shift in behavior.

One of the main reasons for this slowdown is the growing share of household spending on necessities.

These include housing, utilities and insurance, typically paid through cardless channels like ACH and bill pay. As necessity spending continues to rise, it squeezes the funds available for discretionary purchases.

Another key factor is Gen X’s shift to saving and investing as they age. BofA data indicates that Gen X’s per household investment is 40% higher than the average for all generations, suggesting that many in this cohort prioritize long-term financial security over short-term consumption.

This trend is particularly strong among those nearing retirement, as more than one-third of Gen Xers plan to retire in the next 10 years and many are increasing their contributions to 401(k)s and other investment accounts.

Additionally, Gen X faces unique financial pressures from both ends of the generational spectrum. Often referred to as the “sandwich generation,” they are often responsible for supporting not only their aging parents, but also their grown children.

A growing number of young adults between the ages of 18 and 34 continue to live at home, and many rely on their parents for financial support. The US Census Bureau reports that 23 percent of 18- to 24-year-olds live at home, while the number of 25- to 34-year-olds who do the same has doubled since 1960, reaching 10 percent in 2023.

This adds to the financial burden of Gen X households, further limiting their ability to spend on non-essential items. While younger generations have seen robust wage growth in recent years, contributing to increased discretionary spending, Gen X has lagged behind.

BofA Securities data shows that their wage growth has been slower compared to Millennials and Generation Z, making it harder for them to absorb rising living costs while maintaining previous levels of discretionary spending.

However, despite this slower wage growth, the spending-to-salary ratio for Gen Xers has remained relatively stable over the past few years, indicating that their low spending may be more a matter of choice than a necessity.

Going forward, while Gen Xers may eventually benefit from the “great wealth transfer” as Baby Boomers pass on trillions of dollars in assets, those financial gains are likely years away.

Meanwhile, financial pressures to support both older and younger generations, combined with an emphasis on saving and investing for retirement, suggest Gen X’s reduced spending may continue for the foreseeable future.