Investing.com — “Bank of America’s internal card data shows that Gen X discretionary spending has been particularly weak compared to other generations,” analysts at BofA Securities said.
Generation X is a critical segment of the American economy that is often overlooked. Despite representing only 27% of households in 2022, they accounted for more than 33% of consumer spending, surpassing even Millennials.
As of August 2024, Gen X discretionary spending fell 2% year over year, indicating a marked shift in behavior.
One of the main reasons for this slowdown is the increasing share of household spending on essential items.
These include housing, utilities, and insurance, which are typically paid through cardless channels such as ACH and bill pay. As necessity spending continues to increase, funds available for discretionary purchases are reduced.
Another key factor is Generation X’s shift toward saving and investing as they age. BofA data indicates that Gen .
This trend is particularly strong among those approaching retirement, as more than a third of Generation X plans to retire within the next 10 years, and many are increasing their contributions to 401(k) and other investment accounts.
Additionally, Generation X faces unique financial pressures on 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 adult children.
An increasing number of young adults aged 18 to 34 continue to live at home and many rely on their parents for financial support. The U.S. Census Bureau reports that 23% of people ages 18 to 24 live at home, while the number of people ages 25 to 34 doing the same has doubled since 1960, reaching 10 % in 2023.
This increases the financial burden on Gen X households, further limiting their ability to spend on non-essential items. While younger generations have seen solid wage growth in recent years, helping boost their discretionary spending, Generation X has been left behind.
Data from BofA Securities shows that their wage growth has been slower compared to that of Millennials and Generation Z, making it difficult for them to absorb the rising cost of living while maintaining previous levels of discretionary spending.
However, despite this slower wage growth, Gen X’s spending-to-wage ratio has remained relatively stable in recent years, indicating that their reduced spending may be more a matter of choice than necessity.
Looking ahead, while Generation X may eventually benefit from the “great wealth transfer” as Baby Boomers pass on trillions of dollars in assets, those financial windfalls are likely years away.
Meanwhile, the financial pressures of supporting younger and older generations, combined with a focus on saving and investing for retirement, suggest that Gen X’s reduced spending may continue for the foreseeable future.