Low Income, High Spending: See Why Poor Millennials Splurge More Than Rich Boomers -- GOBankingRates

Press Release from Financial Wellness Strategies

April 25, 2024   Written by YaËl Bizouati-Kennedy  

Millennials are facing specific financial challenges. Indeed, inflation, soaring interest rates and the resumption of student loans payments are burdening many of them. Yet, when it comes to spending, low-income Americans in this generation said they intend to splurge more than their richer and older counterparts.

Indeed, a McKinsey report found that millennials — along with Gen Zers — said they were more inclined to make “treat yourself” purchases compared with older generations. And 46% of low-income millennials said they intend to splurge in 2024, up from 42% in the fourth quarter of 2023, according to the report.

On the other hand, only 20% of high-income boomers said they intend to splurge this year, almost unchanged from the 19% who shared this sentiment in the previous quarter.

“This year is ‘peak 65’ for the U.S.,” said Jay Zigmont, PhD, CFP, founder of Childfree Wealth. “What that means is that most boomers are now either in retirement or looking to retire soon.  It is no surprise that they are splurging less as they are now on a fixed income or will be soon.”

What Are the Drivers of Millennials’ Spending Habits?

According to Thomas Savidge, an economist at the American Institute for Economic Research, there areseveral factors at play. Savidge argued that millennials are often associated with the “treat yourself” attitude, where they occasionally reward themselves for accomplishments or tasks completed.

“As mortgage rates and housing costs make home ownership appear increasingly out of reach for many millennials, they opt to spend their money on other things,” said Savidge.

Another factor at play is inflation expectations, he said, adding that long-term inflation expectations are expected to stay above the Fed’s 2% target and even rose over the past year.

“If the value of their dollar is expected to shrink in the coming years, there’s an incentive to spend it now rather than save it,” he added.

What Are They Splurging On?

In terms of which categories they intend to splurge on, for millennials, groceries take the lion’s share with 41%, the report found.

This is particularly interesting, as the price of groceries has been going up for many months. In March, the food index rose 0.1%, a 2.2% increase over the past year, according to the latest Consumer Price Index (CPI) data, released April 10.

And prices for food at home — your grocery bill — were up 1.2% for the year. Meanwhile, in terms of food away from home — what you pay in restaurants — the index was up 4.2% for the year.

Yet, some experts argued that this splurging needs to be put in context.

“We need to really look at how the generations define ‘splurge’ — a millennial may be splurging on higher quality ingredients for cooking at home rather than going to restaurants where the bills can add up,” said Bobbi Rebell, CFP, founder of Financial Wellness Strategies and author of “Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Be Everyday Money Smart.”

According to her, millennials want to enjoy their life and feel excited about where they are now, rather than feeling deprived even if their budgets are still limited.

Other Splurges

Following groceries, 36% of millennials said they intend to splurge on travel; dining out and bars were next at 35%; footwear, with 35%; beauty and personal care, with 34%; and apparel with 34%, as well.

Stoy Hall, CFP, founder and CEO of Black Mammoth, noted that generally, lower-income people will spend more on items that make them feel good in the short run, while higher-income consumers will invest in areas that will make them feel good down the road.

“These items are typically clothing, shoes, accessories, entertainment, which all makes a lot of sense,” said Hall. “When you feel as if you are ‘stuck’ at an income level, you will want to make yourself feel good, even if for a short period, and these items are usually the first ones to be splurged on.”

While Hall added that this is not an ideal financial situation financially-speaking, “I will say if you need to feel good right now, go ahead and splurge that one time, then make a plan and be disciplined!”

The report also noted that while so-called trading down — changing the type or quantity of purchases for better pricing and value — was still prevalent among many consumers, lower-income millennials said they traded down less frequently compared with the last quarter of 2023.